The ETF hasn’t recovered as much as crude oil, but it is still indicative of future price movements in crude oil. Khouw is concerned crude oil could pull back after a big move higher, and so he would look to sell covered calls in USO. He wants to sell the March $37 call against the long USO position for a credit of $1.20.
The sale of the call offers a bit of protection in case of a move lower and it also improves the profitability of making a profit. It offers some upside, as the selling price is set at $38.25 or 8.23% higher.
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