What Goes Up Must Come Down

04/25/2014 8:00 am EST

Focus: OPTIONS

As we head further into spring and temperatures start to heat up, Matthew Bradbard of RCM Asset Management offers two trade ideas on heating oil.

I drew a support and resistance line in white for oil (USO) and one can see that for the most part futures have been in a 15-18 cent trading range. On a 42,000 gallon contract this represents a trading range of $6,300 to $7,560. Stochastics are overbought and futures appear to be starting to roll over. I see red in the last four sessions and prices are probing the eight-day MA ( orange line) as of this post.

I am looking for a 10-15 cent break in the coming weeks. On a futures play, get short with stops above the recent highs. This would be the more aggressive route as one would be risking ballpark $1300-1500 per contract. Size accordingly as I would suggest looking to make $1.50-2.00 per $1 at risk.

HO June Futures:

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The second chart is an options play that I like buying July $2.90/2.80 bear put spreads. 63 days until expiration. Current pricing has July futures at $2.9775. Current delta on this strategy is 15%. 227 points on the spread represents a cost of 227 x $4.20 or $953.40.

chart
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This is NOT a buy and fall asleep at the wheel trade.

By Matthew Bradbard of RCM Asset Management

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