A couple of weeks ago, I wrote about a trade on the United States Oil Fund (USO), which tracks the crude oil price.
The USO trade generated a handy 21% profit in just two days for members of One Ticker Trader.
The theme behind the trade was the huge battle in the oil market.
Global demand has remained weak. So OPEC (the Organization of the Petroleum Exporting Countries) has been cutting supply to shore up the oil price.
But any spike in the oil price from those cuts has seen a wave of short sellers enter the market.
The volatility from these dynamics has created multiple swings… and therefore multiple trading opportunities.
We closed another oil trade last week on Exxon Mobil (XOM). It generated a 26.9% profit in eight days.
Today, I want to show how we did it…
One Trade… Multiple Setups
The chart below shows the price action of XOM since the start of this year.
The 50-day Moving Average (MA, blue line) has tracked relatively flat. But the shorter-term 10-day MA (red line) shows that XOM has had plenty of swings during this time.
First, it had a rally into February before retracing in March. Then XOM rallied again in April before reversing in May…
Exxon Mobil (XOM
Source: e-Signal
After retracing into May, those swings in XOM became smaller. And XOM began to build short-term support (orange line).
Levels like this are really important in testing where the short-term strength lies between buyers and sellers.
If a stock tests a support level several times and the level holds, traders become less willing to sell at that level. That gives a stock (or index) a better chance to bounce.
The same thing applies to resistance.
The more a stock tests a level and fails to break higher, then the less willing buyers are to enter or add to their long positions. In this case, sellers gain the upper hand.
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With our XOM trade, it wasn’t just the price holding the support level that provided the setup for the trade.
As the chart shows, XOM had previously bounced at ‘1’ and ‘2.’ The Relative Strength Index (RSI) formed ‘Vs’ and rallied (left and middle red circle).
The RSI then began forming a third ‘V (right red circle). That showed another upswing in buying momentum. Also, the oil price was trading right near short-term support.
So on June 20, we opened a long position by buying a call option on XOM. A call option increases when the underlying stock rises.
But as you can see, it didn’t go our way right from the start…
Take another look:
Exxon Mobil (XOM
Source: e-Signal
XOM initially rallied the day after entering our position. But then it drifted for a couple of days before finally bouncing at ‘3’ with another uptick in momentum.
Eight days after we entered the position, we saw a good profit (up 26.9%). And the RSI was running into resistance (green line). So we closed out our position by selling our call option.
As always, we need to be clear that we generated this return by using options. And with options, we are always dealing with a shrinking amount of time.
But just like our USO trade earlier this month, options allowed us to profit in a short time on a chart that some might think offered little potential.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
P.S. Each month, we choose just one trading theme in One Ticker Trader. This helps us focus on one trading opportunity at a time… and profit when stocks get overextended and reverse course.
Whether you’re new to options or are simply looking for a new strategy to try, I’d love to have you join me. To learn more, go right here for the details.
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Hi Larry, I love your philosophy and service! I just came across it recently, and when I saw it, wham! – this is what I’ve been looking for, for years! Using options, in and out of the opportunity.
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