DailyPlay – Opening Trade (USO) – February 21, 2023

USO Bullish Opening Trade Signal

View USO Trade

Strategy Details

Strategy: Long Iron Condor

Direction: Bullish

Details: Buy to Open 5 Contracts Jul 21st $71/$77 $63/$57 Iron Condors @ $3.85 Debt per contract.

Total Risk: This trade has a max risk of $1,925 (5 Contracts x $385).

Counter Trend Signal: This is an ETF that is currently bearish and is expected to bounce higher.

1M/6M Trends:  Bearish/Bearish

Technical Score: 3/10

OptionsPlay Score: 97

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Friday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

With markets closed yesterday, we only have how the futures traded to get a sense of what today may look like, and as I write this Monday night, I’m seeing the S&P futures down about 18 points from last Friday’s close. I continue to believe that the way to play the market is for a continued pullback, using a Friday close above SPX 4148 as the stop out of that gameplan.

For a new idea, let’s take advantage of a flat oil market in 2023, but one that has added significant open interest since Jan. 1. (to the tune of over 330,000 contracts – a huge surge considering the market hasn’t moved since then). My experience of having traded futures markets for over 40 years would suggest to me that a large directional move is coming, as one of those two sides of recently added new longs or shorts will be on the wrong side of the move – ultimately exacerbating the move even further as the losing side will be forced to unwind their positions.

As such, I want you to consider putting on a long iron condor in the USO July 21st expiration, buying the $71/$77 call spread (it closed Friday at $1.95 mid) and buying the $63/$57 put spread (it closed Friday at $1.90 mid) for a combined cost of $3.85. I’m willing to give up the first 6% or so move in crude oil before this idea starts capturing any juice to it, but when oil really starts to move directionally, I am planning on it being far greater than a single digit percentage move.

Crude Oil – Daily

USO – Daily