Crude oil at $200 per barrel?
I know it sounds outlandish. But it’s possible.
It would be unprecedented, right? Maybe.
But unprecedented things happen all the time.
If the last two years haven’t proven that to you, nothing will.
Could you have ever imagined being told you shouldn’t leave your house for two months…
In the United States of America?!
In April 2020, while many of us were still sheltering at home, the price of a barrel of oil fell to -$40 per barrel.
NEGATIVE 40 DOLLARS!
But less than two years later, it made a new 14-year high.
Just take a look at the weekly chart of light crude oil futures below…
Don’t talk to me about what’s “unprecedented.”
Anything can happen in the market, whether you want to believe it or not.
Where Are We Now?
All of the action over the last two years or so has left us in an interesting environment, to say the least…
Inflation is through the roof.
War has broken out with one of the world’s top oil-producers.
The current US administration shut down the Keystone pipeline and halted drilling on federal lands.
The White House is now begging dictators to increase production instead of green-lighting American producers to drill stateside.
Demand for oil is almost inelastic. In other words, people are going to buy just as much gasoline at $4 a gallon as they did at $2.
You don’t think the Saudis will take advantage of that and let prices go to the moon?
The chance to punish the US while lining their pockets with greenbacks would be a win/win situation for the middle east.
Commodities Go Crazy
Now, I’ll admit that $200 per barrel is a bold prediction.
For all their incompetence, the powers that be may get things under control before that happens.
But seeing the price of oil double from current levels of around $100 per barrel is not out of the question.
Over the past few years, cotton prices doubled. So did coffee prices.
Steel and lumber prices more than tripled.
So, why not oil?
A Limited Risk, High Reward Trade
I decided to take a couple thousand dollars of “risk capital” to work in order to capitalize on this possibility.
I wanted a limited-risk trade that I could set and forget.
If oil doesn’t continue to rise, I’ll lose a couple grand. No biggie.
But if it does, I want to make a big return.
Luckily, my good friend and colleague Anthony Speciale is one of the best oil traders in the country.
Anthony is also the Editor of The Speciale Report, a premium newsletter here at Trader Agency that focuses exclusively on the crude oil market.
If that sounds like something you’d be interested in, consider learning more right here.
Anyway, I called him up to help me structure the trade.
Here’s what we came up with…
I bought the United States Oil Fund, LP (USO) October 21st, 2022, $90 call options (USO221021C00090000).
At the time of this writing, they trade for around $5 apiece ($500 per contract).
This gives me a little over six months to let the move play out.
If oil prices double, USO should theoretically also double and trade to $145 per share.
At that price, the options should be worth around $55 ($5,500 per contract) plus any additional time value if the move happens sooner than expected.
That means I would net a gain of over $5,000 per contract.
On the other hand, even if oil goes to zero, the most I can lose on this trade is the $500 I paid for each contract.
That’s why I prefer options to build these “limited risk” trades.
Take the Next Step
Will it work? I don’t know. But for me, the potentially massive reward justifies the relatively small amount of risk.
If crude gets back to the highs it made earlier this month, I will likely sell a couple of the contracts to book partial gains and finance the risk.
The goal is to recoup my initial investment and still have some contracts left to create a “free trade.”
I’ll keep you updated on how it goes.
And if you’re interested in making money in the energy market, do yourself a favor…
Consider checking out Anthony’s premium trading service, The Speciale Report, right here.
He’s the best there is when it comes to the potentially explosive oil market. I’m convinced the guy has light sweet crude coursing through his veins!
Embrace the surge,
Editor, Stock Surge Daily