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UCO a good opportunity in oil

June 11, 2015
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By Gulshan Malhotra

Oil prices have settled and are ready to go in north direction. Oil’s bottom prices were around $44 not long ago. Then it rebounded to around $50. After the hedge fund interference it jumped to $58-$60. The rigs cuts has still not reflected in the oil price. The theory goes in the way that the first rigs will be reduced then inventory will reduce. In the end prices will shoot up. At present rigs reduction phase is over and reduction in inventory phase has started.

I believe now is the time to enter to take advantage of the reduction in supply which will increase the price.

The question is how to invest in the oil. There are different ways to invest in the oil either through investment in oil companies or through investment in oil ETF.

This time I recommend UCO ( ETF) by way of buying UCO and sell its call options with strike 10%-15% above current price with expiry date in Jan-2016. The premium you get will be around 15%-20% which is high in range. This premium is generally for normal stock which has a beta of 1.5 is 10%. In this way 15% is guaranteed return and 15% return is dependent on the theory. Your maximum return is 30%. 15% and 30% return is for six month. The annualised return will be 30% and 60%.

I did invested last week in UCO and will sell the option this week.

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