Buying A Call Option On United States Oil ETF $USO

| May 6, 2015 | 0 Comments

OilBuying A Call Option On United States Oil ETF $USO

One of the biggest stories over the last year has been the plunge in oil prices.  Massive supplies and lack of demand caused the price of crude oil to drop below $45 per barrel.  It was a price level many thought we’d never see again.

Moreover, the drop in oil prices has really hurt the shale oil and offshore drilling industries.  Production costs for those drilling/retrieval methods are generally well over the current price of crude.

However, oil may finally be in the midst of a significant rebound.

United States Oil ETF $USO is the most popular way for most investors to trade oil.  The ETF averages 30 million shares traded per day.  It’s easily the most heavily traded of all the oil ETFs out there.

Currently, $USO is trading at $20.83.  That’s 33% from the 52-week low, but still 47% from the 52-week high.  The oil ETF is flat on the year, but has climbed over 15% in the last month.

So is now the time to buy a call option on $USO?

As a reminder, a call option makes money when the underlying stock goes up.  Is $USO getting ready to surge?

For a more in-depth look at this extremely popular oil ETF, you can click the link.

Here’s the deal…

Analysts and traders are speculating that the massive oil supply glut is coming to a close.  Estimates show the US stockpiles increased the least amount in four months.  Plus, supplies at the main oil-storage hub at Cushing, Oklahoma are finally starting to decline.

Couple the supply news with Europe finally starting to show some economic growth, and we’re starting to get a growing demand picture as well.  Lower supplies and higher demand are clearly the recipe for a rebound in oil prices.

In fact, the price of crude oil jumped above $60 per barrel for the first time in five months.  Crude oil futures are now up 5% on the year and 20% for the month.

Here’s the chart of $USO:

call option buying opportunity, a chart of $USO

As you can see above, the ETF finally reversed after a long period of decline.  Last month, $USO broke above the 50-day moving average and is now sitting at the highest level it’s been at in 2015.

Now could be a great time to buy a $USO call option

With the estimated drop in supplies, as well as somewhat good news coming out of Europe, crude oil could be in for a sustained recovery.  Many investors are grabbing oil companies in anticipation of a rebound.  But, why not just buy oil itself using a popular ETF like $USO?

That’s why I believe buying a medium-term $USO call is in order.  The October 21 calls are trading around $1.75.  That’s a very reasonable price to pay considering the time to expiration and significant upside potential of the commodity.

Yours in Profit,

Gordon Lewis

Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.

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