My comments in the other thread have focussed on buying shares in a US oil ETF (equivalent to OOO listed in Australia), but there is another strategy entirely that one can use to buy oil on a pullback. The strategy that I refer to is writing puts.
Ok so oil has had a nice couple of days higher and you might not want to pay up at current prices. The last traded price of this ETF in the US is $19.01. Another way to trade the current market, may be to write (sell) a put option. Based on the closing prices, one can sell a $19.00 put option that expires in just 16 days’ time. In return for selling this put option, I am going to receive $0.70 per share.
So what is my obligation? Well I have agreed to buy shares in this ETF at $19.00 per share on the 20th of March should the price be anything below $19.00 per share. If for instance, the price closes at $18.50 on the 20th of March, I buy shares at $19.00, but I received $0.70 originally so my net entry price comes down to $18.30.
Should the EFT price remain the same or be higher on the 20th of March, well I have kept my $0.70 and that is the end of the deal…
Full list of current option prices below and I have highlighted the option I have referred to above.
Latest chart for the fund is below. The vertical red lines are the option expiration dates both past and future.
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