United States Oil Fund, LP (USO) 11/18/09 PriceWatch Alert Up To 6.35% Downside Protection

Posted: Wednesday, November 18, 2009 8:17 AM EDT
By: Market Intelligence Center Staff

United States Oil Fund, LP (PCX: USO) closed yesterday at $40.48. So far USO has hit a 52-week low of $22.74 and 52-week high of $45.69. USO has been showing support around 39.63 and resistance in the 41.15 range. Technical indicators are Bullish. USO appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Jan '10 40 covered call (USO AH) for a net debit in the $37.91 area. That is also the break even stock price for this trade. This covered call has a 59 day duration, provides 6.35% downside protection and a 5.51% assigned return rate for a 34.11% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the USO Jan '11 20 Call (OTJ AT) and selling the Jan '10 40 call (USO AH) for an $18.33 debit. The trade has a 59 day life and would provide 5.31% downside protection and a 9.11% assigned return rate for a 56.00% annualized return rate (for comparison purposes only). [WBA-Seven Summits Research]