Crude Oil Bets

DO DILIGENCE QUIET FOUNDATION HELPS INVESTORS FIND NEW TRADING OPPORTUNITIES

Soaring prices for oil and natural gas may provide trade opportunities

By James Blakeway

G

lobal supply shortages and inflation continue to roil the economy, emptying the wallets of consumers and businesses alike. In a world of rising prices, energy costs stand at the forefront, occupying people’s thoughts and breaking their budgets.

In April 2020, U.S. oil futures collapsed at expiration, turning negative as global demand for oil dried up. Just 18 months later, oil futures were approaching $85 per barrel for the first time since 2014.

Much like crude oil prices, natural gas prices steadily climbed higher for much of the spring and summer before exploding as fears of short supplies set in with the impending cold weather.

Traders who want to bet on the price action of crude oil and natural gas as the nation heads into winter can use the United States Oil Fund (USO) and the United States Natural Gas Fund (UNG).

Both are exchange-traded funds (ETFs) that use futures contracts to provide access to the price action of oil and gas. Both have listed options contracts, giving traders derivatives for the oil and gas markets without using futures or options on futures.

(Opposite page) Luckbox used the Alpha Boost trade generation system to find both bullish and bearish trades in the oil and gas funds.

James Blakeway serves as CEO of Quiet Foundation, a data science-driven subsidiary of tastytrade that provides fee-free investment analysis and trade ideas for selfdirected investors @jamesblakeway

More than one option

Two ETFs with liquid options provide traders access to the Oil and Natural Gas markets.

Name Symbol Three-month price change

United States Oil Fund USO 22%

Three-month correlation with S&P 500

0.32

United States Natural Gas Fund

S&P 500 ETF (US Stocks)

UNG 28%

SPY 6% 0.04

1.00

Note: Data as of 11/8/21

Alpha Boost,

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UNG Short Put Spread

Bullish trade in natural gas that makes money if UNG stays above 15 by January expiration.

USO Short Call Spread

Bearish trade in oil that makes 54% return on capital if USO stays below 59.

USO Put Broken Wing Butterfly

Bullish trade in oil that can be profitable even if USO falls.

UNG Call Boken Wing Butterfly

Bearish trade in natural gas that is still profitable with a 56% increase in UNG.