Options Play: Crude supplies highest in 80 years

March 8, 2016 11:33 AM

Despite recent bullish developments in crude oil, the market remains oversupplied. Fundamentally, there are few different developments that could help balance supply and demand in the crude oil market. Many companies will spend less on new drilling and exploration as they announced some new budget cuts this past week. 

Also, over the last several weeks there has been a plethera of oil companies filing bankruptcy and going out of business due to low prices. Another bullish factor is that the most recent unemployment data showed an unexpected uptick in job growth and that could help with consumption as commuters drive to work.

Finally, there is a scheduled meeting between OPEC and non OPEC nations on March 20th in Moscow to collaberate on freezing production. However, despite all of these bullish factors we are still sitting on massive supplies, some of the highest in 80 years.

On the daily chart below I have placed my favorite technical indicators. I call this combination of indicators the "10/20/50/BB/ Trend Finder" strategy. They are the 10-day simple moving average (SMA, red line), the 20-day SMA (green line), and the 50-day SMA (royal blue line). I have also added the Bollinger Bands (BB's, light blue shaded area) and Candlesticks (red and green bars with the wicks).

On the daily chart above my favorite indicators show me that we are at a critical resistance area on the upside. In other words, we are at what I would consider to be the top of the recent trading range and if we hold in this area we will probably remain range bound, but if we dont, I look for new highs and a change in trend.

Option Play

For exact details on other types of trading strategies, risk, months, expiration dates, strike prices and number of positions feel free to contact me at 312-277-0115 or mmckinney@zaner.com. 

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About the Author

Matt McKinney is a full-service options broker at Zaner Group both buying and selling energies, metals, grains, softs, currencies and the 30-year bond market. My strategies include time frames of 45-120 days with the ability to liquidate at any time. I can be reached at mmckinney@zaner.com.

Whether you're a novice trader who wants to participate in options on futures or an experienced trader, you can also check out my blog at http://www.mmckinneyfutures.com/.