As we mentioned in our earlier post, one doesn't have to have a large bankroll in order to participate in Commodity price trends. A futures contract for Crude Oil can require thousands of dollars in order to trade even a single contract.
However, if we switch to a Stock ETF like USO, we can participate in the same market for only a fraction of the cost of trading the futures. The recent 'Fibonacci Trends' Signal to purchase Crude Oil was mirrored very well by the ETF represented by the stock USO.
The USO stock only cost in the $9-$10 range around the time the BUY signal was given and, the options on this ETF were only trading in the $6-$7 range per option. That's a much less expensive way to join in on the market action than the conventional approach using large futures contracts.
I've found that taking excellent gains off-the-table as they come along is a good way to work with options due to the decay curve and the ticking clock to expiration. Especially when in a counter-trend rally which appears to be the case at present for USO.
For example, looking at the USO etf above, we've already gained around %15 per option in just a few day's time. If we're only in a counter-trend rally, then, we shouldn't shoot for much more when it comes to gains.
After all, this is an incredible %720 annual rate & around a %60 monthly rate!
Let's take a further look at the strength of this upwards move to see if we can expect it to continue. For that, For that information, I like to look at the Point & Figure Chart for the stock concerned, USO.
After examining the Point & Figure Chart, we find no evidence of a clear reversal to the upside as yet. That means that our current rally should be considered to be only a counter-trend rally at present and close stops should be used as we've already rebounded by over 50% from the Lows and, in the case of counter-trend rallies, that would indicate a top is highly likely here.
Should this develop into a valid uptrend, then, our properly-placed stop won't be hit, but, this chart should give us pause before we get too enthusiastic on the upside. - George
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