If you think about it, going long on /CL at $47.50, let's say we drop to $20 before turning back up. As long as you don't mind riding out a $35,000 loss, you can add 3 more contracts, one at $32.50 (2 @ $40 and down $15,000) and 2 at $22.50 (4 at $27.50) and, if oil gets back to $47.50 at some point, you are up $80,000. You may have to roll contracts along for a while but the gist of the strategy very much argues for taking a stand here - if you agree that sub $40 oil is simply unsustainable over the long haul.
Options-wise, we went with this one last week:
Submitted on 2015/07/20 at 3:39 pm
I think it's worth a fun toss on oil into Sept (Labor Day) with the UCO Sept $30 ($4.60)/$33 ($3.15) bull call spread at $1.45. Let's do 10 of those for $1,450 in the $25KP.
In the STP, we can sell 20 of the $25 puts for $1.05 ($2,100) and use that to buy 30 of the spreads for $4,350 for net $2,250 on the $6,000 spread.
So far, so wrong but that just means you can get better prices today!
Longer-term, USO decays a bit but you can sell the 2017 $15 puts for $2.30 and that's net $12.70, which is $3.15 (20%) lower than we are now, so that's $40 oil you're betting against and, even if USO is put to you at $15 - don't you WANT to be long on oil at $40?
That can be combined with the 2017 $12 ($5.20)/16 ($3.20) bull call spread at $2 and you still have a net 0.30 credit on the $4 spread for a better than 1,000% return on cash if all goes well.
Let's say you want to own $30,000 long oil at $45ish, 20 of these spreads puts $600 in your pocket and costs you about $5K in margin with an $8,600 upside potential if oil is back over $50 in Jan 2017.
