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Oil's Well That Ends Well

9/11/2014 6:19:39 AM

Good morning Traders,

A brief update on our position in oil:

Back on 7/25 we recommended the following options for USO based on our research.

USO Options Prices

Here is the current pricing on the September PUTS:

USO Options Prices 2

So the 37.5's are up some 360%...

And here are the October PUTS:

USO Options Prices 3

The October 37.5's are up over 260%.

That being said, what's our view on oil now? As you know, we're developed several directional indicators on oil (and gold, which we're long PUTS and Nat Gas, which we're long CALLS). It's all available in our research indicators. But here's a general one on supply and demand - because periodically it matters:

Oil Inventories versus Oil Price Chart

Sometimes the basic law of supply and demand matters. This chart is showing oil inventories growing, which isn't something you'd expect in a heating up economy. Sure - economic reports are looking very positive, but there's a lagging factor to them. Our indicators suggest that the economy is cooling off - and oil is one of those factors...

That being said, oil volatility is climbing, which is what it needs to do in order to set a bottom. I'm guessing around the next options expiration we may start seeing some bottoming action.

Regards,

 


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