I’ve been digging into oil lately and wanted to get some feedback from people who trade this more actively.
I’m considering opening a put spread on USO, at the current 145 price or USO, I’d open a 140/120 spread with an October expiration. My general thesis is that oil prices are elevated right now and could come down before midterms, even if it doesn’t happen immediately.
I’m not necessarily expecting a full collapse, more of a moderate pullback into the 120s range over the next few months. I like the defined risk aspect of the spread vs just buying puts, especially if things chop around before moving lower.
Curious how others would approach this:
Do these strikes make sense for that thesis?
Would you go closer to the money or wider on the spread?
Is timing the bigger risk here vs direction?
Appreciate any thoughts, especially from people who’ve traded oil or USO options before.
Thoughts on opening a put spread on oil?
byu/tzsnacks ininvesting
Posted by tzsnacks
3 Comments
I mean that’s just gambling. Do you make a post about whether to go red or black on roulette?
The default advice is to not trade options, especially if you don’t understand what you’re trading.
USO is based on oil futures. So you don’t have to have the right direction, but the correct future value range against the option premiums based on expected volatility. You can be directionally right and still lose money because you’re not “right enough”. It’s not about how much it drops but if it drops more or less than the market is predicting.
So first look at the futures themselves and decide if you think they are over or under at the strike and time you’re considering.
What is your theory for why oil is going to come down before midterms? Politicians can’t talk oil into existence…