At $70 per barrel, most oil companies print money. Many are profitable all the way down to a breakeven of about $35-40 per barrel. Our administration has been releasing our strategic petroleum reserves in order to lower the cost of our gas at the pumps. It’s down to the lowest levels since 1984. Therefore, we will place an easy option trade in oil using the crude oil futures CL.
In this post, we discuss an easy option trade in oil that we can put on when oil gets to around $70-75 per barrel. $70 is the level that Biden said he would start buying back and refilling the SPR.
Real quick before we get started: Please check out and download the FREE options Workshop. It talks about the two main reasons why options can be less risky and more profitable than just buying stocks alone. It goes into detail about profiting in both directions and picking your win percentage can give you a huge advantage over just buying stocks alone.
DISCLAIMER: I am not a financial planner and I am not recommending trades. Please do your own research and talk with your Financial Planner when making trades.
If you are new or learning options, I recommend you start small. I look at my options trading account separately as a business in itself.
Why will Energy – Oil and Gas Do Well in 2023?
Let’s be honest guys. Fossil Fuels supply 85% of the World’s energy and that is not going to change significantly in the next decade. It is very much a political issue along with things like climate change.
Until the next election in 2024 and a possible change in the administration, it’s very likely that we will stay energy dependent and oil prices will remain high.
When the Crude Oil Futures get in the $70-75 range I am going to be long crude and buying hand over fists until the next election.
How do we trade Crude Oil without risking too much?
Let’s look at how we can place an easy option trade in oil using the Crude Oil Futures.
We’ll go to the TastyWorks trade platform (see the link below) and punch /CL in the upper left. We go the the March 16th option chain since it is closest to 45 Days to Expiration.
We then go to the Table mode on the trade platform and look to sell the 70 PUT by clicking on the BID and BUY the 69 PUT by clicking on the ASK.
I like to Sell a PUT Vertical like this for a couple of reasons. Futures are a big product and I only want to use around a $1000 in buying power. I also want to limit my loss if there is a big move against me. The vertical provides that protection.
We see that we are collecting $290 and Risking $710 which is the max loss.
Let’s switch to the CURVE Mode by clicking on CURVE.
You can see the profit zone in green. As long as we stay above the $70 short PUT at expiration we keep the $290 we collect when we place the trade. With the current price at $74.85 we can move down 7% in the next 38 days which is a big move and still keep that profit!
If we look at the chart trending from 2002, this seems to be a good point to get bullish.
Now here we see the $290 we collected on Feb 6th.
Even though we are still 38 DTE Days to Expiration, I will look to take this trade off if it is profitable sooner.
Alright, moving forward one day later. Just as suspected Crude moved up to $77.19 and I was able to close the trade for a quick $80 profit. Not bad for 1 day!
Sure we could wait the 38 Days and try and keep the full $290 which would be great. However, there is always the risk it can move down. When I have a quick gain I look to take it off and then wait and put it back on again on a down move.
In other words, rinse and repeat!
Next time, if it gets back down to that level, I will likely place a $3 wide PUT Vertical since I am pretty confident in that $70 floor. This would put the max profit at about $1000 and max loss at about $3000.
So if we would have gone $3 wide on this last trade, instead of $80 we would have made $80 x 3 = $240 in the 1 day.
Alright guys, remember to grab the FREE Options Workshop. Be sure to grab that,
Let me know how you feel about a $70 floor for Crude along with what you’re trading in the comments below.
Thanks for reading and see you in the next one!