A week ago, I told you about a trade I was taking in the oil market…
And how I thought we could see crude at $200 a barrel.
Today, I have an update for you on how I am managing that position.
Because even if you did not take the trade (which is up 70% at the time of this writing), I want to show you how I “finance” my risk.
I believe oil prices are going higher – potentially a lot higher.
But I don’t know for sure.
Any time I take a trade, my two main concerns have to do with risk.
First, how much can I lose if I am wrong?
And second, how soon can I “de-risk” this trade?
Dealing with Risk
Since I bought call options to bet on oil going higher, the answer to the first concern was simple.
I bought six contracts of the United States Oil Fund, LP (USO) October 21st, 2022, $90 call options (USO221021C00090000) at $5.70 ($570) each.
The total for the investment was $3,420. That’s the most I could lose.
As I told you a week ago, my friend and colleague, Anthony Speciale, is one of the best oil traders in the country.
He’s the guy who helped me structure this trade so well.
He’s also the Editor of The Speciale Report, a premium newsletter here at Traders Agency that focuses exclusively on the crude oil market.
Even if oil goes to zero, my risk is capped at 3,400 bucks.
Next, I want to get risk off the table as quickly as I can.
My goal is to get decent profits on the board, sell part of my position and “finance” the risk on the rest of the trade.
Ideally, I want to be in a position where I have recouped most of my initial investment and am only risking “house money.”
On Wednesday, I took the first step.
Locking In Profits
USO gapped up that morning, driving the value of my options up to $10 ($1,000) – a gain of 70% in just two weeks.
So, I sold two of my contracts, or one-third of the position.
I now have four of the original six contracts remaining.
By taking partial profits, I have de-risked the trade in a big way.
The options cost me $3,420. That was my total risk.
I just collected $2,000 by selling a third of my position.
My total risk is now just $1,420.
If USO has another strong day and re-tests the highs made in early March, my remaining four call options should be worth around $15 ($1,500) each.
If that happens, I will sell another one and remove 100% of my risk.
At that point, I will have recouped my entire $3,420 investment and will still be holding three call options worth a total of $4,500.
Even if oil crashes, I will not lose a dime… Because I am playing with house money.
But I can collect all of the upside between now and October when the options expire.
This is how I “de-risk” my trades. And it’s why I prefer selling into strength on the way up.
Before I go, if you’re interested in learning how to structure great crude oil trades on your own, consider checking out Anthony’s work at The Speciale Report.
Embrace the surge,
Editor, Stock Surge Daily