March Crude Oil is virtually unchanged this morning at $76.14 as I write. The included chart shows that crude oil has gone from a bullish consolidation bull flag to a sagging mess. The chart suggests that prices will eventually test down towards the upward trending intermediate trend line down in the area of $70.00 per barrel. Also, lows made in the March contract hit near $67.00 in late September and near $64.00 back in mid July. For today, I recommend buying one March Crude Oil ($69.00 strike) put option and selling two March Crude Oil ($64.00 strike) put options at an overall credit of 30 cents of $300 gross. My expectation is that the $70 area will hold, but if it doesn’t there is good support down in the $67 to $64 area. If filled, this trade will pay us $300 gross up front, so if prices never make it down to $69 by expiration, then we will keep the credit. If at expiration on February 17th, prices close near $64, then our potential gain could be the difference between strike prices of $5.00 or $5000 gross. The risk is that if prices spike down too soon in the direction of $64, then we would have to exit the trade for some sort of loss, the amount of which depends on how long it take to get down there to those price levels. The best case scenario is for March Crude Oil prices to fall to the $64 level very near the expiration date.
Followers of this letter should have the following positions:
Followers should also be long one March Crude Oil ($62.00 strike) put option from $1.51.
Short 2 March Crude Oil ($57.00 strike) put options from 83 cents each.
March Crude Oil options expire in 70 days.
David Hall
The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.
This newsletter is not intended for dissemination to the public without prior approval from David Hall.
