Options Trading Strategies For Oil

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• OPTIONS TRADING

Options Trading Strategies For Oil
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• Hi, My name is Steve and Im with Options Trading
  Research, today were reviewing our recently
  published article

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• Options Trading Strategies For Oil

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• If youve been following the financial news
  lately, youve likely seen a lot of talk about
  oil. This time however, its not because the
  price of crude is skyrocketing. Instead, its
  because oils price per barrel has hit multi-year
  lows.

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• In fact, West Texas Crude Oil is at the lowest
  level its been at since the financial crisis of
  2009. Minus the financial crisis period, oil
  hasnt been this cheap since around 2004.

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• So what should we expect from crude in 2016?
  Keep in mind, I recently said to avoid using
  bullish options strategies for oil next year. I
  definitely think the supply glut will keep prices
  low for the foreseeable future.

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• So what options trading strategies should we use?

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• First take a look at this chart of crude oil
  WTIC over the last year

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• The chart of crude oil shows how black gold has
  done this year. Prior to the summer, it actually
  hit 60 per barrel for a couple months. However,
  the price has since plunged, and is now trading
  well below the 50-day moving average.

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• Whats more, the price of oil is sitting below
  the 40 mark. That price seems to hold some
  significance among oil traders/investors as a
  sign oils bear market will continue.

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• As I said before, Im not a fan of oil for 2016.
  That doesnt mean it will stay below 40.
  However, a return to 60 or above isnt likely
  anytime soon either.

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• So what options strategies should we consider?

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• Given the macro environment for oil, there are a
  few ways to tackle options trading strategies.
  First off, you can trade oil in many ways,
  including but not limited to oil futures, ETFs,
  and oil companies.

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• The easiest way to trade oil as directly as
  possible is by using ETFs. However, you do have
  to consider contango costs associated with
  commodity ETF in general.

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• On the other hand, major oil companies are so
  heavily invested in natural gas these days, they
  arent pure plays on crude either.

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• Regardless of what instrument you choose, I
  believe selling out-of-the-money puts are one
  good way to make money on cheap oil.

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• There is still some downside risk, so puts should
  hold value. On the other hand, how low can oil
  realistically go? There is a floor out there for
  sure.

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• On the other hand, using covered calls is a safer
  strategy to utilize to generate income. There may
  not be as much yield upside, but the limited
  upside in oil itself lends itself well to a
  covered call strategy.

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• The key theme is I would lean toward selling
  options on oil products for the time being. Even
  if oil volatility picks up, there isnt likely
  going to be a huge move in either direction
  unless the oil market fundamentals significantly
  change.

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