The price of oil is typically very sensitive to economic changes, such as quantitative easing. With more talk of “QE2,” the volatile United States Oil Fund LP (NYSE: USO) could create some interesting trading opportunities here. USO is an exchange-traded fund (ETF) that represents the profit and loss of oil futures contracts on a month-to-month basis.

We’re looking in option trading information at buying a single-leg option, but we’re planning to modify the trade as things progress. So there’s a possibility that we’ll add a second leg to this trade in the near term to turn it into a bear put spread that will remove a lot of risk.

Trade: Buy to open the USO Nov 33 Puts for 55 cents ($55 per contract) to profit from a decline in USO toward or below $33

Max Loss: $55 per contract
Max Gain: Unlimited
Breakeven: $32.45

Position Sizing: With this purchase we’re paying a premium up front. Our maximum loss is the total that we’re paying for these contracts. Your personal position sizing is dependent on the size of your portfolio and the risk you’re comfortable with.

To learn more about this trade, including the out-of-the-money limit order, and specific risks and profits involved in this type of trade, watch the video here.

Disclaimer: It is important to understand the risks of trading options before you attempt a trade like this. This article is for educational purposes only.

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