DailyPlay – Partial Closing Trade (USO) – April 3, 2023

Investment Rationale

The quarter finished strong, and the SPX is within striking distance of the 2023 highs, less than 100 pts. away. Tech, which was the biggest sector gainer this year, is, in my opinion, due to not materially increase in relative performance in the near-future, most likely resting now after outperforming in Q1 by over 13.5%.

There was a news headline over the weekend, with OPEC cutting production more than expected. Crude oil quickly traded up over $6 last night, and I think this is the catalyst that will cement the recent low in oil near $65. That mid-March decline did NOT see open interest fall on (meaning longs were not forced out and that shorts did not cover), and what it does mean to me is that I want to remove the long put spread in our long USO condor spread, leaving us with just the long $71/$77 call spread. I think that shorts are going to get squeezed out, and given that the US government didn’t actually buy more oil under $70 (as they indicated they would) to replenish the Strategic Petroleum Reserve – they too will feel the pain of not having purchased when the opportunity came.

I’ve just looked at 9 different trade ideas in the past hour that I am willing to do based upon chart signals. Not a single one of them has a call debit spread priced at less than 38% of the strike differential, nor a put credit spread priced at more than 30% of the strike diff. It makes it virtually impossible to recommend a trade with options priced as they are right now. I know enough not to push things when there’s no edge to putting these trades on. As such, I am not going to give you a new trade idea today. (That’s me watching out for you.)