DailyPlay – Opening Trade (USO) – May 1, 2023

USO Bullish Opening Trade Signal

View USO Trade

Strategy Details

Strategy: Short Put Vertical Spread

Direction: Bullish

Details: Sell to Open 16 Contracts June 2nd $67/$65 Put Vertical Spreads @ $0.74 Credit per contract.

Total Risk: This trade has a max risk of $2,016 (16 Contracts x $126) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $126 to select the # contracts for your portfolio.

Counter Trend Signal: This ETF is currently neutral but expected to trade higher over the duration of this trade.

1M/6M Trends: Neutral/Neutral

Technical Score: 3/10

OptionsPlay Score: 88

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

We finally saw the SPX close above its weekly cloud top on Friday, as did the SPY and the S&P futures. This doesn’t make me bullish, per se, but from a risk management perspective does make me less bearish, and it did take us out of the long SPY put trade on last Friday’s close (as previously written as our buy-stop).

I still see lots of issues going forward – the obvious and the not so obvious.  For instance, if you take away the performance of the 7 biggest SPX names, there’d be very little reason to be an equity market bull. Breadth is poor, and frankly, the SPX is up 19.5% from the October low while the far broader and more “average stock” Russell 2000 index is down 7%. Since the Feb. ’23 peak, the SPX is flat and the Russell is down 11.7%. That’s not exactly a bull market environment.

Here’s a monthly chart of the SPY/IWM. There’s resistance around here, and should this chart start heading lower, it’s not particularly bullish, too. (The weekly chart of this pair comes in on a Combo +12 from last week, too.)

SPY/IWM – Monthly

So, the main point I’m making is that the likelihood of a mega bull market kicking in here on the SPX cloud chart breakout last week is just not likely.

For a new trade idea, let’s play for a bounce in crude oil after a potential trading bottom was made last week. As calls are way too pricey (yes, even with a VIX at 16, this is a commodity-related ETF and not your typical stock), we can receive very close to our standard desired credit intake of 40% by selling the USO June 2nd $67/$65 put spread. (I’m seeing USO decline by about $0.50 on Sunday night right to $67, so based upon Friday seeing where the $67.50/$65.50 theoretical value was, it collected 39% of the strike differential.)

USO – Daily