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United States Oil Fund

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USO trade ideas

OPENING: USO JULY/OCT 10/13/13/16 DOUBLE DIAGONAL... for a .77/contract credit. Truth be told, I kind of hate USO, with XOP being my go-to for petro-based plays. That being said, with its high implied volatility rank (65) and its decent background volatility (31%), I figured I'd throw a "can't hurt much" trade on here as a demo trade for a "safety tape" setup. The basic notion of a "safety tape" trade is to define your risk with longer-dated, cheap throwaway longs, while trading essentially naked inside the longs. This is particularly useful in cash secured/small account environments where being naked invokes a buying power reduction equal to the short put strike minus the credit received and/or where brokers generally prohibit naked short calls, with the workaround being to buy a cheap long call anyway to define the theoretically infinite risk that a naked short call entails. Alternatively, it's a way for people who fear the notion of full on naked from a risk standpoint to get some of the benefits that trading naked entails (i.e., fewer legs, quicker vol crush and/or theta decay, easier rolls) without "hanging all their junk out there." (No one wants to see that). Here, the buying power effect is attributable to the widest wing of the setup (3.00), minus the credit received (.77) or 2.23, far less than you'd tie up trading the naked short straddle cash secured (basically, $1200, since the July 20th 13 short straddle is trading for about a 1.00 here). I'll look to take profit on the short straddle at 25% max as I would if I were just trading it purely naked, and then sell another ATM short straddle, reusing the longs as many times as I can before they expire ... .
AMEX:USO
by NaughtyPines
USO LongUSO technicals showed a triangular consolidation which lead to positive continuation on the daily chart which is resulting in a continued reversal on the weekly chart from the previous downtrend. Trump helped oil by withdrawing from the Iran deal so this catalyst coupled with the technical charting should provide a fairly strong up trend. USO broke out of the triangle upwards, revisited the average, and is now pushing upward in a strong manner leading to a close outside the daily band resulting in increased volatility.
AMEX:USOLong
by thePirateKing