As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.
Further Explanation to: Trade Alert - (USO)
Buy the United States Oil Fund September, 2013 $39-$42 put spread at $2.60 or best
Opening Trade
8-20-2013
expiration date: 9-20-2013
Portfolio weighting: 10%
Number of Contracts = 38 contracts.
I think that oil peaked last week with the Egyptian Army?s attack on the Muslim Brotherhood, which killed over 1,000. This has broken the back of the fundamentalist opposition movement which has accounted for the $20 spike in oil prices over the last two months.
This returns us to the longer term fundamental trend for oil, which is sideways at best, and down at worst. The US is flooding the world?s oil markets with energy in all its many forms. There is a ton more of new supply coming. This is what the weakness in the price of natural gas is telling you. The driver here is American fracking technology, which will continue to upend the traditional energy markets for decades to come.
We also received a new negative for oil today, the collapse of the emerging market currencies, especially the Indian rupee. This reduces their purchasing power in US dollar terms, thus raising the cost of oil in local currency terms. As the emerging markets have seen the largest growth in demand for oil in recent years, this can only be bad for prices.
In terms of my own trading portfolio, I want to have a ?RISK OFF? position lie in an oil short to hedge my two ?RISK ON? positions with my existing shorts in the Euro (FXE) and the yen (FXY). US stock markets could be weak into September, and they will take oil down with them.
Buy 38 September, 2013 (USO) $42 puts at??$4.35
Sell short 38 September, 2013 (USO) $39 puts at.?.$1.75
Net Cost:????????????....??..??......$2.60
Profit: $3.00 - $2.60 = $0.40
($0.40 X 100 X 38) = $1,520 ? 1.52% for the notional $100,000 model portfolio.
