Add USO Calls

Playing an Oil Pop

By Bryan Bottarelli
Thursday, July 24, 2008 2:30 PM EDT
Thu, 24 Jul 2008 18:30:00 GMT

PLAY: Buy the USO August 100 Calls (IYS HV) at or under $5.50, good for the day. Place a protective stop limit at $3.90 and a pre-determined sniper sell at $6.80.

Dear Bottarelli Research Member,

The Dow has now traded 200 points lower, as the financial sector (as I expected) is leading the way down. This helped us lock in a nice profit on our SDS August 70 Calls (SDS HR) this morning. Although it appears like I sold these calls too quickly, I continue to feel that locking in quick profits in this manner is the only way to go in this market.

As you know, this morning’s SDS sale now leaves our trading ledger empty, but that won’t last too long. After all, if the markets are once again ready to move lower, then I would argue that oil prices are once again ready to move higher. In fact, a quick look at the United States Oil Fund (USO – AMEX), which mirrors the performance of light, sweet crude oil, appears to be forming a near-term bottom right at the $100.00 level.

USO

Now, we’ve recently had great success playing calls on the UltraShort Oil & Gas ProShares (DUG – AMEX), which moves at a rate of twice the inverse of oil prices. But as you can see below, the current DUG chart is finding resistance at its 200-day moving average, and this is a confirming signal that oil prices could be setting up for another upside push.

DUG

With both the USO and the DUG offering similar directional indicators, I’d like to add a new August call play on USO, which will profit if oil prices tick back up. Oil has pulled back rather aggressively lately, so we’re playing a quick bottom-feeding opportunity into tomorrow (and perhaps into next week). On that note, here’s the play:

PLAY: Buy the USO August 100 Calls (IYS HV) at or under $5.50, good for the day. Place a protective stop limit at $3.90 and a pre-determined sniper sell at $6.80.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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