Using Options To Profit From Increasing Gas Prices

I suspect you’ve noticed the price of gas jumping recently. And you’ve probably heard the rumors that it’s going much higher. Maybe even $5 per gallon. Now if you’re in Southern California, that price doesn’t shock you a bit. But if you live in Texas like I do, that would be enough to make you break out your horse for the ride to work.

Well, instead of just sitting around belly-aching about it, why not start thinking about how to grab a chunk of the extra profits? Below is an excerpt from an article in Seeking Alpha about doing just that. Check it out.

I would use these sell offs in oil as an opportunity to be bullish on oil as we get closer to the summer. The reported pipeline explosion in Saudi Arabia is nothing new to the oil markets and one cannot discount the possibility for a “real” pipeline explosion, geopolitical unrest, Iran tensions or any other events that can cause oil to shoot higher. There are many different ways to play oil using options, but I am going to stick to one oil option play for now. If you are not familiar with the United States Oil Fund (USO), this ETF tracks the spot price for WTI crude. The United States Oil Fund is a play for higher oil and this ETF also invests in futures contracts on crude oil, natural gas and heating oil.

Trade Idea: Buy USO May Calls

If you read any of my past articles you will know that I’m generally conservative on my option trades. But, when I make trades on commodities ( oil, gold and silver for example) I tend to be a little more aggressive by buying in the money calls or just buying slightly out of the money calls. After the two day selloff in oil, I bought the May $42 call in USO for $1.90 or (1.90 x 100 = $190). I am not going to recommend a specific strike, but the further in the money you go and these calls start to get expensive.

Go to Seeking Alpha for the entire article

Option Trading Secrets