If you missed the Coaches Show yesterday, I had some great info to share on oil. I manage money for oil business bigwigs and give them ideas on option strategies. It’s great being a mentor and meeting students who are in the oil business and being privileged to the insider stories and facts.My students selling puts on oil futures and followers have profited big on oil because of my ideas and strategies. Oil has been one of my main money makers this year so far, so let me share a little info with you here.
Oil has a battle of US companies trying to buy as many of the futures contracts as they can to support the 50 per barrel floor. There, they can break even on the sale of oil and keep most employees working. Below 50 per barrel, they have to take a loss and start layoffs. Overseas oil companies, mainly Saudis, are producing faster than they can sell, and as they fill their reserves, they are forced to lower prices to not have an oversupply and call a tipping point where they have to dump what they can’t sell. Therefore, they lower the price to rid themselves of it faster.
Well, ignore the news on tipping point: they’re 50-60% full and filling up at 5% per month. There’s no need to worry about tipping point until July. By then, transportation speeds up, hopefully Saudis stops selling the futures contracts against them, and the dollar balances out.
Oils is NOT at 50.60 as reported just now on CNBC, and other sources. It’s at 50.60 on the near term contract for April expiry and the spot price being traded today. The May contract is at 52, July’s at 55, December’s at 59, January 2016 is $60 per barrel, and it goes upward from there. I’m pretty confident it will hit $100 a barrel again in my lifetime, so I don’t mind owning the ETF USO for oil longer term and selling calls against it. Instead of buying oil from overseas and storing it, they buy longer term futures contracts to lock in the barrels for future delivery and then store it, refine it, or trade it. If oil is still at 50 in the future, that’s when they’ll take a hit on the contracts if they take delivery or they’ll just roll out the contract until it rallies again.
I am not bullish or bearish, but the naked puts and credit spreads on /CL ( crude light futures) 25% OTM have been working, and a protective put on the USO oil ETF holdings never hurt anyone while selling calls against the USO ETF. Hope these insights are helpful to you; just an insider info passed along.
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