[Options] Super Cyclin'

Sean McLaughlin
February 3, 2021

JC and I conducted a great options webinar last night, attended by well over 500 people. It was a fun opportunity me to lay out some of the core options strategies I employ on a regular basis to make trades in a variety of trading environments. And the questions we received from the audience showed that they were engaged and enthusiastic, which makes it great for everyone.

Options volumes on US exchanges have been exploding in recent years as investors and traders are waking up to the power and flexibility that trading options provides. And our event last night was a reflection on that.

Anyway, at the conclusion of our call, JC teased a trade out of me I had not yet put on but was considering entering.

Check out this chart on United States Oil Fund ETF $USO:

During the call, JC mentioned something about a commodities "super cycle" that may be about to get underway, and that USO plays nicely into that theme.

And as you can see from this chart, $USO has a lot of ground to cover back to 2020 highs.

The beautiful thing that caught my eye about this ETF was the incredibly low implied volatility being priced into options here. Check out where we are today, compared to where we've been over the past year:

This sets up a great opportunity to take a longer term position at bargain prices.

During the call last night, as JC put me on the spot, we discussed the potential of putting on a call calendar spread. But on second thought during quiet contemplation last night and this morning, I decided it makes sense to just keep it stupid simple here. I'm just buying long calls.

Here's the Play:

I'm buying $USO January 50-strike calls for approximately $1.40 (or cheaper). These out-of-the-money calls offer an approximately 22 delta and give us 352 days until expiration. Plenty of time for a "super cycle" to drive this ETF higher.

The risk management level I'm watching is 33. If $USO closes below 33 at any time during this hold, my thesis for being in this trade is busted and I'll look to exit and salvage whatever is left of the out-of-the-money premium in the calls.

On the upside, I'll look to sell half of my position if I get a double in the value of these calls, then HODL for the rest of the year and hopefully go for a "free ride" with all of my original risk capital tucked away safely in my cash account.

If you have any questions on this trade, please send them here.

~ @chicagosean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free!

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