The Case for Buying WTI Crude Oil Futures & Selling Crude Oil ETFs (USO) Cash Covered Puts
We'll examine the current state of oil and where we are going.
June 1, 2008 the United States Oil Fund was at $909.28 per share. On April 27, 2020 the United States Oil Fund was at its lowest ever price of $18.86. In todays case study we explore the Federal Reserve and price action from 2006 until March 2023, present.
When to Trade Oil Successfully, Three Patterns
One pattern that is evident is that the price of WTI Crude oil & USO tends to be higher towards the end of the year and lower towards the beginning of the year.
**The price of crude oil is consistently lower in January and February, and higher in October, November, and December.
Another pattern is that the price of WTI Crude oil & USO tends to be more volatile during the first quarter of the year.
**For example, NYSEArca: USO, the range between the high and low prices is much larger for the months of January, February, and March compared to the other months.
Average percentage change is 5.34% to 5.91% between monthly time periods based on USO open and close data from 2020 to 2023
**For example you know prices will swing month to month about these % changes.
The Current State of Crude Oil & It’s Effectors
The state of the global economy can drive up or down demand for oil, as can geopolitical events such as conflicts in major oil-producing regions.
Changes in technology and energy policy, such as the rise of renewable energy sources, can also affect demand for oil.
The effects of US macro news on commodity prices, including oil, are stronger during periods of high market volatility, and the effects of monetary policy are more pronounced for energy commodities.
The price of oil tends to be more volatile during the first quarter of the year, higher towards the end of the year, and is generally increasing over time, with some fluctuations.
More Patterns Based on USO Stock Price Data Since 2016
There has been a recent decline in energy prices, which is expected to continue throughout the year, potentially providing some relief for households.
The overall trend of the USO stock price seems to be increasing over time, with some fluctuations along the way. This suggests that the company has been performing well and growing in value I’d say and shows demand growing.
The trading volume tends to be higher in months where there is a significant change in the USO stock price. For example, the highest trading volume in the dataset occurred in March 2022 when the stock price had a large increase.
There are some months where the opening and closing prices are very similar, indicating that there wasn't much volatility during that period. For example, in January 2022, the opening and closing prices were within a few cents of each other.
There are also some months where the range between the high and low prices is quite large, indicating that there was significant volatility during that period. For example, in October 2022, the high price was almost $14 higher than the low price.
The Summarized Case for Global Growth, War, 10-Year & Historically Low Oil Prices
As of March 2, 2023, the current state of the global economy is having a significant impact on the relationship between oil and other economic indicators, particularly the 10-year period. Historically, in periods of economic growth, there is an increase in demand for oil and oil prices, while a downturn in the economy results in a decrease in both demand and prices. Presently, the 10-year period is at an all-time high, indicating a positive outlook for the global economy. This is attributed to the world's successful comeback from the COVID-19 pandemic that brought many economies to a standstill.
The price of WTI Crude oil and USO tends to be more volatile during the first quarter of the year, higher towards the end of the year, and is generally increasing over time, with some fluctuations. Recent data shows that there has been a decline in energy prices, which is expected to continue throughout the year, potentially providing some relief for households.
Macroeconomic news releases and monetary policies, particularly those from the United States, have a significant impact on commodity prices. Positive news typically results in an increase in prices, while negative news leads to a decrease. Currently, the news has been neutral, and no significant changes in commodity prices have been observed.
Geopolitical events such as conflicts in oil-producing regions can have a significant impact on oil supply and cause prices to spike. The ongoing conflict between Ukraine and Russia, coupled with a high demand for oil in China and India, has the potential to drive oil prices up. Therefore, it is essential to keep an eye on geopolitical events as they remain a key factor that could disrupt oil supply and drive prices up in the future.
Based on the patterns observed, the price of crude oil is consistently lower in January and February and higher in October, November, and December. In addition, the price tends to be more volatile during the first quarter of the year, with a higher trading volume in months where there is a significant change in the USO stock price.
Overall, while the global economy's positive outlook and neutral news have had a stabilizing effect on commodity prices, geopolitical events remain a key factor that could disrupt oil supply and drive prices up in the future. Therefore, it is crucial to weigh the potential risks and rewards before making any investment decisions in oil stocks.
A Trading Strategy Tweetsift Follows
We will focus on selling bi-weekly cash covered puts on USO for an extra $200 per week in income with $28,000 in our account. If assigned we will actively sell cash covered calls. According to the research starting in October we will see the price of oil go higher like it does every year. USO, 61.81 - 92.20 52-week range it’s at $68.30 today.
With the volatility of the beginning of the year is over with and the middle of the year here, demand coming back. job growth doing well, housing market still doing OK and a new global increase in manufacturing demand, we here at Tweetsift think this is a great time to enter into WTI Brent Crude futures and USO.
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