Energy prices may not be headline news these days, but the price chart in United States Oil Fund LP (ETF) (NYSEARCA:USO) is definitely worthy of bullish traders attention. And for those seeking to strike gold without getting drilled, a bullish long call strategy in USO is the vehicle of choice. Let me explain.
Despite being out of a spotlight seemingly dominated by bitcoin, cryptocurrencies, Trump’s latest tweet and daily ruminations of buying the dip in the S&P 500 or selling a top in the Dow Industrials, black gold remains a very important market.
Thursday’s latest nugget of information to momentarily reframe fair value came out of OPEC. Ministers announced a bullish outlook for oil markets with healthy energy demand and supply cuts by the cartel trumping a U.S. shale boom.
On top of the recent Vienna deal, the looming summer season, Trump’s intent to nuke the Iran nuclear deal and increased geopolitical tensions, it does appear bulls have the upper hand.
And in USO stock, it appears those same traders are readying to hoof the bull to higher ground.
USO Stock Weekly Chart
To say that it’s been a historic and rip-roaring good bull market is akin to fake news when looking at the past few years of USO stock. But the oil proxy’s bearish narrative looks set to become very favorable for bullish investors. Bottom line, markets are cyclical and just as all good things come to an end, the opposite is mostly true of under-appreciated assets such as USO.
Supporting our upbeat view on USO stock, shares have rallied nicely out of a double bottom variation formed during 2016 into 2017. But the price run looks far from finished.
The oil proxy has just broken out of a year-to-date consolidation which found (mostly) pattern support from prior key resistance established over the last couple years. As much, USO appears to be on the cusp of a major bull run following a prolonged bear market.
USO Stock Long Call Strategy
Reviewing the USO options market, shares at $13.52 and given our expressed optimism, the August $14 call for up to 65 cents looks attractive in our view. As regular readers are aware, I’m a big supporter of spread trading whenever possible. But not today.
Ultimately, adjusting the USO long call into some other combination will undoubtedly make a good deal of sense if shares begin to improve upon a strong-looking platform for higher prices in USO.
For now, with premiums cheap, risk contained to less than 5% of USO and the August contract allowing ample time to deliver strong returns on this nearly at-the-money call—the price is right for this very simple but effective directional strategy aimed at upside for USO stock in the weeks and months ahead.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.