Trade of the Day: Energy Transfer Equity LP (ETE)

Oil might not move up too much -- but it doesn't need to

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Commodities are presenting some interesting opportunities. The oil situation seems to be improving, with short-term oil futures rising higher than longer-term oil futures. This tells me that there is a lot of demand for oil right now, as longer-term oil is typically going to be higher-priced due to carrying costs among other things.

The price of WTI crude oil has been chopping around the $50-per-barrel level as it tries to find some support. However, while I don’t think it’s going to move up all that much from here, it could have a very positive impact on energy stocks, so that’s a place where I’m looking for bullish opportunities — like this call debit spread on Energy Transfer Equity LP (NYSE:ETE):

Using a spread order, buy to open the ETE Jan. 19th $17.50 call and sell to open the ETE Jan. 19th $19 call for a net debit of about $0.60.

A debit spread is simply a way to lower the cost of buying options, as the option that you sell to open (short) helps offset the cost of the option that you buy to open. Therefore, this call debit spread is a way to lower the cost of buying bullish call options. Many brokers will require the use of margin and/or a set amount of reserved capital to execute a debit spread; contact your broker directly for specific requirements.

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Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.

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