DailyPlay – Opening Trade (USO) – August 24, 2022

USO Bullish Conditional Trade Signal

View USO Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 8 Contracts Sept 16, 2022 $75/$81 Call Verticals @ $2.72 Debit.

Total Risk: This trade has a max risk of $2,176 (8 Contracts x $272 per contract).

Trend Continuation Signal: This is a Bullish trade on a stock that is experiencing a bullish trend. 

1M/6M Trends: Mildly Bullish/Neutral

Technical Score: 9/10

OptionsPlay Score: 95

Entering the Trade

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

Please Note that this is a CONDITIONAL TRADE. See the Condition below. The strike prices, premiums, and OptionsPlay Score will therefore be slightly different when the condition is met, and we enter this trade.

Investment Rationale

Not much of a day for the equity market yesterday, though the thrust in energy-related names continued as oil surged another few dollars after Monday’s headlines that OPEC may reduce output in coming months. The dollar also fell, giving metals a decent lift, while natgas got hit for 5% after posting a daily Sequential +13 on Monday.

As we get closer to this Friday’s Fed statement from Jackson Hole, you’re going to want to make any portfolio changes you deem necessary before that 10am ET announcement, for it can surely send the market sharply-lower or higher, depending upon how hawkish – or not – Chair Powell comes across on his inflation-fighting agenda. (If for some reason between now and then the SPX finds itself nearing 4050, I’d be more apt to be a buyer there, as the reward to risk ratio is preferable (i.e., I could risk, say 50-75 SPX points vs. possibly making 200 quickly).

For today’s Daily Play, I want to stay away from a “pure stock”- type idea, because none of us has any clue as to what/how Powell is going to say on Friday. So, rather than putting on something that has a 50/50 chance of still being right after he speaks then, let’s at least go into the commodity world, as the price of oil should not be as much affected by what he says, than, let’s say, MSFT or JPM might be.

With oil having rallied sharply the last two days – and the weekly oil inventory report coming out today at 10:30am ET – let’s look to buy a pullback in the US Oil Fund ETF (USO), as the daily chart posted a recent Sequential -13 “downside exhaustion” signal, and price appears to be headed higher. So, should we see the USO trade down to $75 or lower, then let’s look to buy a September 16th $75/$81 call spread at the then mid-price level. THIS IS A CONDITIONAL TRADE. If it doesn’t get down to $75 or lower today or tomorrow, we’re not putting the trade on.

USO – Daily