Crude oil futures can be a treacherous trading arena, but we've found a cheap and limited risk way to play the upside.
The September crude oil $51.00 calls can be bought for less than $250, and we think they should be. They have 59 days and about eight Wednesday inventory reports until expiration. That gives the market plenty of time to change course.
The strike price of these options is $7.50 out-of-the-money (they trade against the August futures contract), but in crude oil that is nothing more than a blip. You might recall that the price of oil was above $50.00 a few short weeks ago.
Keep in mind that any time options are bought, the odds of success aren't necessarily in favor of the buyer. Options are priced to lose, which is why we are generally fans of premium collection, not premium outlay.
Nevertheless, there are times in which it makes sense to have a flyer out there, and this feels like one of those times. If the market reverses sharply, as we believe it will, these options should pick up value nicely, regardless of whether the strike price is reached.