Originally, in our Morning Post, we said:
One nice way to play oil short is the Ultra-Short ETF (SCO), which has dropped to $70 pre-market so we're going to add the following trade to our Options Opportunity Portfolio:
- Buy 10 SCO Jan $65 calls for $10.40 ($10,400)
- Sell 10 SCO Jan $75 calls for $7 ($7,000)
That's net $3,400 on the $10,000 spread with an upside potential of $6,600 (+194%) in 50 days if oil gets back below $50 post-holidays which, Fundamentally, is a very strong possibility. It's a nice play as it requires no margin but it can be paired with a put sale like, for example, selling 40 SDRL 2019 $1.50 puts for 0.80 ($3,200), which nets the trade out for $200 with the same $10,000 potential return. SDRL is priced for Bankruptcy and your worst case is owning 4,000 shares for $1.50 as they go worthless but, at the moment, those shares are $3, so I love the gamble!
And that's how you can turn a $200 cash outlay ($2,040 in ordinary margin) into $10,000 in 50 days – a 4,900% (49x) return on your money, averaging 100% per day – aren't options fun? That's why we don't mind the fact that our Member Portfolios are 80% cash – it makes us feel all safe and secure, allows us to run in and BUYBUYBUY if we do get a correction and, there's always fun plays like this we can make if we're bored.
Don't forget we're talking our book, we have a big position on SDRL in our Long-Term Portfolio with a net entry at $1 and a max gain of $9 on 2,500 shares ($22,500). It's actually the most speculative play in our Long-Term Portfolio at the moment and, so far, it's up $6,813, so plenty of room to run if all goes well.
