I’m not saying I’m terribly bullish on oil at these levels in the near term, but I do think oil will continue to move higher over time. I actually think it could pull back some from where we are today to the low $90s if not upper $80s. I don’t think we’ll see the $70s any time soon though. If we do, I’ll be ready to load up even more by then.
I’m still adjusting to UCO’s pricing since the reverse split in my watch of the 2x crude oil sub-index ETF. While UCO was trading at $53.21 this morning I sold one UCO April $44 naked put at $1.20 and received $119.49 after commissions. This $44 strike would be the equivalent of an $11 strike under the old pricing. The premium is small, but with less than six and a half weeks to go before expiration the potential annualized gain is over 22.5%. Hopefully by the time this contract expires (along with my eight other UCO $11 puts) the price of oil will be down some and I’ll feel more comfortable selling new options closer to the money where I can earn a better return on my investment. If oil falls quicker and deeper than I expect I wouldn’t mine owning it at my reduced cost.
I think this will be my last trade on UCO until April. I have a little over 11% of my account in it now and don’t want to do something stupid in case the unexpected happens. I’ll save that stupidity for when I double up using an options strangle if UCO falls under $44.00 by April options expiration.
Although today’s rally is something to behold, I’m not dumping my long SSO put yet that I bought yesterday. I could only sell it for $55 this afternoon if I wanted to exit this trade. That’s not worth the potential gain I could have in a quick correction. We got the bearish 10/20 day moving average crossover today that I said was coming, but now that the SPX has moved above both of these lines it’ll be interesting to see how long it lasts. To me, this looks a lot like the pattern we saw in the second half of November when this same crossover happened. The November bounce equal to today was followed by three days lower down to a trend line of higher lows that worked as support and launched the index higher again. We wouldn’t have to fall back much from this afternoon’s levels to reach a trend line that could offer support. If tomorrow’s employment report is as good as the recent weekly jobs data has been all bets for a correction could be off the table for a few weeks and I’ll have to scramble to add some more exposure quickly so I don’t get left behind.