While we rested peacefully Sunday, the new leader of Saudi Arabia, King Salman made a statement that he will continue his half brother’s previous policies along with the oil output quota.  This news hit the oil market in a bearish way, causing the futures prices to drop 1%.

This morning we are going to open up a bear put debit spread for a one week trade using the oil ETF “OIH”, with an expiry of January 30th.

Here is what this trade will look like:

  1. Buy 10 OIH – 35 Jan 30 Puts (ITM) at total cost:  $1,650
  2. Sell 10 OIH – 33 Jan 30 Puts (OTM) at total credit of: $200

Total Cost: $1,450

The first position establishes a bearish trade for the week.  The second position generates some income to offset the cost of the first position.  The net total is a debit of $1,450.

If OIH goes bearish as anticipated we will make profits down to $33, which would be an approximate return of $1,500.  If OIH trades lower than 33 our profit is capped as a result of the second position (but we got paid for it).

Our maximum loss is the net debit of $1,450.

This trade has a risk to reward ration of approximately 1, not the greatest in the world, however the technicals support a one week bearish outlook and we are also utilizing a strategy that reduces the overall risk.  Now that’s trading like a TRADEPRO.

 

Have a great week, good luck, and good trading.

 

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The information contained in this presentation is solely for educational purposes, and does not constitute investment advice.  The risk of trading in securities markets can be substantial.  You should carefully consider  if engaging in such activity is suitable to your own financial situation.  TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trades.