Stock / Symbol: [private_monthly]United States Oil Fund / USO[/private_monthly]
Price at trade post: $37.40
Option Strategy: diagonal call spread
Max Risk: $712
Max Reward: $346 or 48.60% by Feb 2011 expiration
Profit Range: $37.50 +
Max Reward Price: $40 at Feb 2011 expiration
Reasoning: This is a bullish play on Oil. We're going to take advantage of the recent pullback in oil using [private_monthly] USO[/private_monthly] as it tracks oil nicely and has relatively low volatility. This trade can yield us a very healthy gain if the stock closes at or above $40 by February expiration. If it closes under $40 by Feb 18th, we'll have taken in an uncalled return of 12% and will then look to sell March calls against the position. We also like that our break even on this trade is just 10 cents higher than it's current price.
Trade Details:
[private_monthly]
Buy 2 USO Jul11 36 Calls @ $4.05 for $810.00
Sell -2 USO Feb11 40 Calls @ $0.49 for ($98.00)
for a net debit of $3.56
Requirements:
Cost/Proceeds $712.00
Option Requirement $0.00
Total Requirements $712.00
Estimated Commission $12.95
[/private_monthly]
Chart:
[private_monthly]
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