Behavioral Shift In The United States Oil ETF (NYSE:USO)
Since its volatility heyday of 2008, the United States Oil Fund (NYSE:USO) has experienced a notable behavioral shift. In fact, when juxtaposed with late 2007 through 2008, the last two years look like a completely different security. While the latter time period was likely a profit-fest for volatility buyers, the former has been a veritable boon for volatility sellers. Couple the declining volatility with the absence of strong directional moves and the entrenchment of a trading range and you’ve got a trading environment quite conducive toward strategies like short puts, covered calls, iron condors and the like.
Let (NYSE:USO) serve as yet one more example that change is a constant. It’s not difficult to find stocks that seem to reward certain strategies month after month after month. In fact, the seemingly easy money can lull the complacent trader into a stupor potentially causing them to miss signs of a sea change looming on the horizon. Though buying straddles throughout all of 2008 likely would have a consistently profitable venture, it turned sour in early 2009. Whether or not the USO’s rangebound behavior lasts for another month or another year remains to be seen. For now at least, (NYSE:USO) has become a friend of put sellers.
[Source: MachTrader]
Since its inception in 2006, we have seen some tracking errors crop up in USO’s ability to accurately follow crude oil. After bottoming in early 2009, crude oil has risen over 140% ($33 to $82) while the (NYSE:USO) is only up 56% ($23 to $36). While that certainly illustrates some inefficiencies in the USO, we could say that this year has sucked less bad. With crude futures up 3.6%, the (NYSE:USO) is “only” down 11%.
Written By Tyler Craig From Tyler’s Trading
ABOUT: Tyler Craig, author of Tyler’s Trading and owner of TC Trading, Inc. Over the years I’ve educated hundreds of traders through my work with one of the nation’s leading educational firms. I enjoy writing and am a current monthly contributor to the Wealth Intelligence Magazine. My writings have also been featured in Expiring Monthly and frequently show up in the Abnormal Returns Options Newsletter. In 2009 I started Tyler’s Trading to share daily market commentary on stocks and options.
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Agree that USO makes a nice covered call right now. Especially with QE2 on the horizon. With USO at 35.70 you can do a buy-write for the Nov 35s and get an annualized return if flat of 32%. Or if you’re more bullish, the Nov 36s pay ARIF of 50%.
MikeS
http://www.borntosell.com