The ASC team is out with a piece calling for a potential short-term bottom in the Energy space. I’m liking some of the setups I’m seeing and I’ve got an options play to get us involved.
Here’s Bruni on what he’s seeing for the sector:
We’re…seeing a tactical bounce in Energy stocks which have been an absolute disaster, so there may be some short-term trading opportunities there on the long side. At the very least, it’s tough to be short those names at current levels.
Overall, Energy looks to have confirmed a near-term bottom…
Adding to this, the ASC team is looking for the potential of a 30% higher bounce from here. This is the chart they shared and clearly shows the level we’re betting on holding:
The best way I know how to express a bullish opportunity while simultaneously strictly limiting my risk is via simple long calls. And we’re going to do it through the US Oil ETF $USO.
Here’s the Play:
We’re buying $USO July 12.5 strike calls for 29 cents. The most we can lose is the premium paid up front. The 12.5 strike was chosen because it currently offers a 25 delta, which is my sweet spot when buying long calls. I like the leverage when I’m right!
If $USO closes below $10.35, then we are likely too early. I’ll look to close this position if there’s any premium left in these options.
If $USO goes our way… we’ll look to close half of our position at a double — at approximately 60cents per contract — to take our original risk capital off the table and then hold the rest into July at which time we’ll evaluate where we are. In early July, if our calls are in-the-money (ITM), then I’ll hold for as long as any near-term support holds and I’ll close on any break. If our calls are out-of-the-money (OTM) in July, then I’ll just close them for whatever I can get (if anything). Theta will be our enemy at that point.
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