The market stalled at resistance yesterday, but the VanEck Vectors Oil Services ETF (NYSEARCA:OIH) pushed higher. With a bullish put write, traders can take advantage of inflated options premium and OIH’s bullishness.

Yesterday, Dr. Anthony Fauci testified before the Senate — along with Centers for Disease Control and Prevention (CDC) Director Robert Redfield — and their outlook may have been a bit more nuanced than investors were hoping.

In so many words, both of them emphasized the need for more COVID-19 testing, contact tracing and public health training to ensure a safe reopening of the economy.

Their tone ranged from optimistic to foreboding, and that may have been one reason for the markets bearish turn at the end of the day.

But oil had a good day, and I think that trend will continue in the short term.

Production Cuts Push Prices Higher

Oil prices are still low, but they are stable at their current levels. Part of this is thanks to production cuts from Saudi Arabia, the United Arab Emirates and Kuwait, which are easing oversupply concerns. Saudi Arabia cut back production to 7.5 million barrels per day, which is the lowest level since 2002.

The Saudi-led Organization of Petroleum Exporting Countries (OPEC) has said it wants to maintain supply cuts beyond June, and that should help keep prices stable.

Futures prices are up this morning. Investors seem to have gotten over their concerns from yesterday.

We still don’t know how reopening the economy will go, but when it happens, we can expect demand for oil to pick up.

Between production cuts and increasing demand, I think oil has found a bottom, and that means this is an excellent time to sell puts on an oil-related ETF. OIH tracks stocks in the oil-services industry, which includes companies like Halliburton Co. (NYSE:HAL).

These companies may not be directly involved with production, and instead, provide services like analysis and transportation. HAL, for example analyzes data to optimize production. If oil starts doing better, it’s safe to say these stocks will benefit, at least in the short term.

Steadily Making Higher Lows

If you look at the chart below, you can see that ever since it bottomed in March (as did the rest of the market), this ETF has been steadily making higher lows. The ETF just broke above its 50-day moving average, which is a sign that its strength is starting to return.

Daily Chart of the VanEck Vectors Oil Services ETF (OIH) — Chart Source: TradingView

We still don’t know how the reopening will play out, but in the short term, there are reasons to be optimistic. The production cuts around the world should help keep oil prices up, which is good for oil companies and the businesses that serve them.

Volatility is still elevated, so traders can get great premium by selling far out-of-the-money options. I am looking at $84 as a strike price because it falls on OIH’s up-trending support. It is low enough to give the stock some wiggle room, but high enough to offer a good premium.

Sell to open the OIH June 5th $84 put at about $1.15.

Note: Be sure you are opening the weekly OIH options that expire on Friday, June 5, 2020.

This is a high-risk trade, so take a small position.

About Naked Put Writes

A naked put write is a bullish position in which you expect the price of the underlying stock to increase.

InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. 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.