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Mike Khouw's USO Trade

On CNBC’s “Options Action” on Friday, Mike Khouw suggested a strategy for investors with a long position in United States Oil Fund LP (NYSE: USO).

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.

© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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