Week of April 5, 2010
No it’s not Bob Hope with Ann-Margaret and Charo, this USO show is CST’s head option’s mentor Dan Keegan is talking about an intersting ETF to watch and how you might play it:
“USO” – United States Oil Fund LP (ETF) (NYSE) is the ETF (exchange traded fund) that most closely follows the oil market. Until recently It hasn’t had a great deal of movement in 2010. Any trader who sold the at-the-money straddle at the beginning of any expiration cycle so far this year has profited handsomely.
USO closed at 38.40, 39.09 and 39.20 on the January, February and March expiration dates respectively. That’s only an 80 cent range. Not enough range for a successful straddle purchase. Last Friday, April 2nd, USO closed at 41.20 with the USO April 41.00 straddle priced at 1.69 with two weeks until expiration. That doesn’t seem too rich for an ETF that has moved 2.74 within the past week. USO needs only to trade above 42.69 or below 39.31 over the next two weeks in order for the straddle to finish in-the-money.
And that doesn’t take into account the gamma scalping against your long straddle position that can help to defray the decaying time value. However, if you think that the 41 straddle is a better sale than a purchase, then you might think about purchasing the USO April 39.0-43.0 strangle, priced at 0.45 – it is inexpensive protection against the straddle sale.”
If all that is Greek to you, take our options course and learn the language of options including options Greeks from Dan or one of our other mentors.
