Crude oil has been trying to resume its uptrend and many technicals now point the way to higher prices. With continuing problems in Iraq and now the threat of a conflict with Iran looming over the market, the path of least resistance is clearly up. Recent Commitment of traders data shows that small traders are overwhelmingly short which means that any rally will result in short covering by those small traders.
A short covering rally could easily push this market back into the mid 60’s range and this trade is designed for exactly that scenario.
click on the chart to enlarge
Buy one April 2007 Crude Oil 60.00 call and at the same time sell one April 2007 Crude Oil 65.00 call for a combined cost and risk of 125 points ($1250) or less to open a position.
Max profit, assuming a 125 point fill, is 375 points ($3750) and occurs with Crude oil trading at or above $65.00 at expiration. Break even point is 61.25.
Max risk, before commissions and fees, and assuming a 125 point fill, is $1250. This occurs at expiration with Crude oil trading below $60.00.
Odom & Frey
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