I entered a long position in US Oil Fund (USO) today by writing puts. (CBOE has a good article about put writing strategy, PDF here) At least this time, time decay will be on my side. Seeing that USO traded down to 28.40's in the pre-market, I placed a limit order at 8am at 2.05, but it was never triggered when I got back to my desk at 10:30. NY crude oil futures (QM) went just below \$48 but it bounced back pretty quick. This led to my conviction that Oil has strength underneath its belt.
As I suggested in the weekly review, I'm to look for values in the tech/telecom. But I also noted Basic Materials as a viable alternative. Well, I read through a few charts last night, namely ADBE, INTC, and CHL, but as nice as they were, they aren't screaming buys at this point based on the indicators and chart.
I also considered precious metals using SLW, but Gold/Silver seems to be at a pivot level at this point. So it's anybody's game for them.
Then I read a couple of blog posts regarding USO/UCO from some respectable traders. Figure 1 and Figure 2 shows my own analysis. The pattern looks good and the indicators are in buy zone too. On top of that, the overnight and premarket moves as I explained above looked good too. That's when I decided to enter.
[caption id="attachment_1213" align="aligncenter" width="500" caption="U.S. Oil Fund ETF"][/caption]
[caption id="attachment_1214" align="aligncenter" width="500" caption="U.S. Oil Fund ETF"][/caption]
Target: From Figure 2, \$32 is first level. Then \$34.
Stop: Recent lows about \$28.
Bottom line: Since I wrote puts on this, time is on my side. The time decay in options will add to my bottom line. And because we long weekend coming, the options premium is going to drop and bunch as well as low activity level expected this week. I will try to hold this until next week and hopefully longer.
On a sidenote, I feel that I've learned from my recent mistakes of entering too early and demonstrated patience and discipline in this entry. In particular, I waited til the morning and watched it bounce on support before placing a limit order.
USO touched \$29 and retraced to close its intra-day gap when I entered this position. It just glided over the support and bounced right back. That was very bullish in the short term. As I'm writing this, USO continued its climb to \$29.80 now.