USO Thesis

1. QT will do its job.

2. What goes up fast goes down fast too. Blow off tops are rainmakers for options trades because the initial reversal is a technical move, the short thesis kicks in after. With USO (CL in parentheses), it was $74 in mid-May ($100 for CL). The move since mid-May has a parabolic shape to it.

My USO puts are at $70 because I expect if QT2 works like QT1, then oil will drop quickly. It fell 44 percent in three months in 2018Q4. If oil drops 20 percent from current levels, it gets to around $92 per barrel or around $69 for USO. However, there's a Fib right above that area, so my wager is that by mid-July USO will be closing in on the $60 level. In a nutshell, if crude does tumble because of QT2, I want to be positioned for a downward acceleration and possible overshoot on the downside. There are plenty reasons to go with higher strikes for a higher probability payoff, but I like the low-cost, "unlikely" payoffs.