On May 31st, I highlighted Gold as a trade that could double quickly if you traded the ETF, GLD, with its August 127 calls.
I was too conservative.
With yesterday’s rally in Gold, those calls are now up 500%.
Don’t buy them now, but don’t sell them either if you own them.
Now it’s time to buy ‘black gold’. Here’s how.
Crude Oil, otherwise known as ‘black gold’ has been hit hard since May, and just this week, it bottomed out.
You can see by the weekly chart of USO below that it has had a very strong week.
$12 and $10 have been important long-term levels for USO, so it’s not surprising that it has reversed in this area.
The sentiment on Crude Oil has been extremely bearish, so a move of this size, above prior lows suggests the bottom may be in.
The best way to play this, however, is with the Oil Services ETF, OIH.
As you can see by the chart below, it has a very well-defined double bottom.
Based on this pattern, a rally up to the $18 level seems like a reasonable bet over the next several months as long as crude oil stabilizes.
If the breakout over the $14 level is good, then it should not trade lower than $13.50. As a result, that’s where I’d place a stop.
The buy zone is between $14.50 and $14.
With $18 as a target and $13.50 as a stop, this trade has a good 4 to 1 reward-to-risk profile.
However, if you’d like to take advantage of this setup with a trade with much bigger upside, then consider the OIH October 17 calls. these offer the opportunity for a double or triple if OIH rallies to 18 in the coming months.
If this happens, however, then we’ll want to only take partial profits, because if $18 gets broken, then $22 is the next target.
If OIH is at $22 when the Oct. 17 calls expire these calls which you can buy for 30 cents now, will be worth $5. That’s over a 1,000% return.
Rick Nartarian, Chief Investment Officer
The American Investor Daily