Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Crude Oil Price Is Lower – and You’re Richer

Commodities / Crude Oil Jul 29, 2015 - 04:57 PM GMT

By: ...

Commodities

MoneyMorning.com Shah Gilani writes: On July 16, I gave you the real story on why oil prices are falling – and a trade to make you some easy money.

Since then, West Texas Intermediate (WTI), the U.S. crude oil benchmark, is down 5%. As of midday yesterday, the October $15 puts on the United States Oil Fund LP ETF (NYSE ARCA: USO) that I recommended buying when they were trading at 50 cents each were up 40%, and trading at 70 cents each.


Here’s what’s happening with oil now – and what to do with your winning USO position…

When Bad News Is Good News

Crude oil is in a bear market – again. It’s down 20% from its most recent highs, set on June 10.

As I showed you back on July 16, oil – being a commodity – mostly trades based on supply and demand. And because there’s been an increasing supply of oil in the face of only a moderate pickup in global demand, oversupply is leading to further price cuts.

Thanks to an explosion of shale oil, the United States is producing 9.7 million barrels of oil a day. That new record, eclipsing the old mark set back in 1970, makes America the third-largest oil producer behind Saudi Arabia and Russia.

Additionally, Saudi Arabia and Iraq are producing at record levels themselves, and Russia is desperate for revenue, which it gets by selling its oil. Then there are prospects that disruptions in crude production in Libya could soon be reversed, and Iran is capable of adding another million barrels a day to global supply, if and when sanctions are lifted.

However you look at it, there’s a lot more oil coming to market in the foreseeable future.

Morgan Stanley (NYSE: MS), whose analysts underestimated the supply of crude coming to market, now says a potential oil crash could be the worst in 45 years.

That’s good news if you’re short oil or short oil-services companies – as we are in my Short-Side Fortunes advisory service.

Or if you followed my recommendation here to buy put options on the U.S. Oil ETF

As I said, those October $15 puts (USO151016P00015000) I recommended here on July 16 had surged 40%. And with the oil supply rising, there’s room for those puts to go higher – maybe a lot higher.

Here are some options to manage this trade now.

If you think oil will bounce higher from here, sell your puts and grab your big, quick profit.

If you’re bearish on oil like me, I recommend you use a stop-loss to sell the puts if they drop back to 50 cents. That gives oil room to bounce a little from being “oversold” on a technical basis. And it keeps you from losing anything if a bounce turns into a snap-back rally.

I’d hang on and see if oil reverses from yesterday’s pop higher and heads back down. I’d be looking for a big move that sends the put options back up $1, which would mean you’re up 100%.

If the puts get to a $1, we’d know oil prices are slipping and be more comfortable that we’re on the right side of the move and that prices might keep going down.

At a put-option price of $1, I’d sell half the position – locking in 100% there – and hold onto the other half, looking for an additional 50% gain on the remaining puts.

I’d take all my profits there and be very, very, very happy.

If we get the oil-price slide we expect to get, but fear another snap-back rally from there, here’s what to do. After you take your 100% gain on half your position, put down a stop-loss order on your remaining holding to sell if the puts fall back to 75 cents. That way, you make 100% on half your position and 50% on the other half.

I’d be very, very happy with that gain, too.

Of course, oil prices could pop, any time, for any number of reasons- for instance, the Organization of the Petroleum Exporting Countries (OPEC) could agree to production cuts – and your puts could fall quickly. If you’re worried that you’ll lose the profits you have, then any time you’re afraid the trade will go backward on you, sell out and take whatever profit you can.

Because at the end of the day ringing the register with any amount of profit is a good day.

Managing Your Way to Wealth

Murphy’s law tells us that “anything that can go wrong, will go wrong.”

Don’t get caught up in Murphy’s law.

It’s always great to be in a profitable trade. But sitting in profitable trades – especially fast-moving and expiring options trades – requires diligent trade management.

And that means you have to have a plan in place for every trade you make.

If you don’t know how manage your trades, don’t worry, I’ll be talking a lot about such strategies right here.

That’s because I’m going to recommend a lot more trades, like the winner we’re sitting on now. And I want you to become the happiest – and wealthiest – trade-management expert you know.

P.S. I hope you’re all liking and following me on Facebook and Twitter. Once you’re there, we’ll work together to uncover Wall Street’s latest debaucheries – and bank some market-smoking profits.

Source :http://www.wallstreetinsightsandindictments.com/2015/07/oil-is-lower-and-youre-richer/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in