USO long dated calls. It's $1.76 a share for $5 strike price on Jan 2022. That's a 36% increase from the current share price of $4.99. The 52 week high is $13.86. I can't imagine the current oil war will continue for another 2 years.
You know that USO does not hold physical oil, but futures contracts, right? Futures contracts are now in heavy contango (front month is cheaper than following month). That means every month USO has to roll over these contracts by selling front and buying next month, so USO will lose value over time as long as these conditions persist.
You might already know this but that is why USO can lose value over time (the opposite was true when oil was higher). So careful with the timing.
The point is that contango is like a slow trickle that decays your value. That doesn't mean it can't go up due to larger fluctuating factors. But over time is does go down while in that state, so it's not a buy and hold play.
Basically you need the virus situation to abate, along with OPEC price wars to end. And it needs to happen very soon (check the spread between front month and next month oil futures).
You may be missing the forest for the trees. The oil market has fundamentally shifted in the last decade. The US is energy independent with its massive oil projects and unfettered access to fracking and tar sands and what not. Don't catch a falling knife.
Case in point: Look at natural gas. We've been in a gas glut for a decade plus+ (https://pages.etflogic.io/?ticker=UNG for example, https://finviz.com/futures_charts.ashx?t=NG&p=m1 ). Big infrastructure builds and special cryo tanks are everywhere. Gas has never recovered from its 2008 peak... The same has played out and is playing out in crude.
You're right. The market has shifted in the last decade. That's why USO dropped from 60-100 before 2008, stayed around 40 until 2015, and then maintained 10-13 ever since. There's no way it won't rebound slightly when this ends.
If you're risk adverse the $2 calls Jan 21st, 2022 are $3.35. Required move to break even is 9.91%. It dropped 50% MTD. I don't need a full recovery, just a minimum of 10% over the next 2 years.
Misleading... Sure breakeven is 10% if you assume all-else-equal. Your path to profitability is path dependent. If it moved 10% tomorrow, you would probably be hard-pressed to make any money considering spreads and other trading costs. You really need a bigger move to breakeven in a short amount of time.
That's not correct, nor misleading. The breakeven point would need to be met on the day of expiration. If it shot up 10% tomorrow I would be profitable. I'd still have the value associated with theta less volatility.
But if oil war ends in next 18 months, and demand goes back to where it was (which it will in 18 months)... why would things not go back to how they were 2 months ago?
1) will the oil war end in 18 months? (probably, but who knows how things will play out)
2) will demand for oil pick up? there are a lot of business hurting bad now, and lots more shuttering. the work-remote thing is out of the bag, and remote work for office types may just be a thing for here on out.
