Sold New USO Naked Puts

While USO was trading at $56.85 I sold two USO November 51 naked puts (USOWY) at $1.85 each and received 358.50 after commissions.

I picked this out of the money strike based on USO’s low recently. I’m expecting that low just above $50.00 to hold as support. It also balances me better for the seven calls I’ve sold with only 100 shares long. This moves my position delta down to -40.70. It was closer to -100 before I sold these new puts. I’m expecting oil to stay range bound for a while still and want to profit from the high volatility while I wait it out.

I was tempted to get out of some of my calls yesterday when oil jumped, but waited for the dip today to sell the new puts. Too bad I sold the puts when USO was off its lows because it’s falling again now (still $5 out of the money). I could handle buying more at $51.00 if it goes that low in two and a half weeks.

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Comments (3)

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3 Comments

Comment by Mark

Alex,
What is the conversion for the USO ETF to the price of crude? For example, if you wanted to buy the USO when crude hit $60, what would be the USO equivalent price?

Thanks.
Comment by Alex Fotopoulos

I don’t know the exact equivalent. I typically try to peg it on percentage changes. If when oil was at $70 I thought oil could drop to $60 I’d peg USO for a 15% fall too. It doesn’t move exactly % for %, but is fairly close.
It’s not like SPY which is supposed to track the S&P 500 which moves closer to it.
Comment by trading S&P 500

This was a good call, SPY and USO have both been rolling over together. DRYS is just getting killed today, I’ll revisit at $5.