1 Way To Go Long Oil If You're Betting On A Comeback

He recommends selling puts on oil stocks into the end of the year. He also discussed how to adjust the trade based on risk tolerance and the movement of the oil market.

Benzinga recently had the chance to speak with Leav Graves, founder of Option Samurai, about year-end trading opportunities in the options market. Graves believes that now it the time to begin testing the waters in the battered oil space.

Time Is On Your Side

With WTI currently hovering near $40/bbl, oil is essentially at its lowest point in more than a decade. While there is plenty of room to the downside, Graves shared that the high-demand commodity does have a degree of downside protection because is will never go to $0.

While it might still take some time before a major recovery in oil prices hits, U.S. producers have already begun dramatically reducing rig counts, cutting output and slashing capex.

When oil prices get lower, or stay low for a relatively long time, time is on our side, Graves told Benzinga.

Trading Ideas

When Benzinga asked Graves if he sees any specific option trading opportunities in the oil space, he said that he recommends selling out-of-the-money (OTM) puts on the United States Oil Fund LP (ETF) (NYSE:USO), Noble Corp plc (NYSE:NE), Exxon Mobil Corporation (NYSE:XOM)and/or Chevron Corporation (NYSE:CVX). He further suggested traders start with December 18 puts.

We can see that the annualized return from the premium is 6973 percent on the high end and 3042 percent on the more stable companies, he told Benzinga.

Adaptability

Graves emphasized that, much like the oil market itself, this trade should be dynamic, and traders should modify it with the changing oil market. If the trade goes against us, we can roll the puts down, earning premiums, he advised.

Graves also emphasized that each individual trader should weigh his or her own risk appetite before making the trade. Selling in-the-money puts or focusing on the more volatile names in the oil space is a higher risk/higher reward play, but focusing on OTM puts on the relatively stable and profitable big names like Exxon and Chevron is the safer bet.

Disclosure: The author holds no position in the stocks mentioned.

Image Credit: Public Domain