Option Samurai: How To Trade The Drop In Oil Prices

Following oil’s big 8 percent drop on Monday, Benzinga had a chance to speak with Leav Graves, founder of Option Samurai, about opportunities that he sees in the options market that have been created by the move. Graves mentioned one particular trade that stands out at this time.

Cheering falling oil prices
The big drop in oil prices will certainly have an effect on many names in the oil & gas industry. According to Graves, while some companies are hurting, refiners such as Tesoro Corp TSO stand to benefit when it comes to the bottom line. 

The trade
Following the big move, Graves used Option Samurai’s search platform to identify the best opportunity to trade Tesoro. He explained to Benzinga that selling a Tesoro put on an $84 strike for July 24th expiration would give the trader about $0.89 and represent a 22 percent annualized return. “It also provides 10 percent protection on the downside and the break-even point is on support,” he added.

Five positives
Graves listed five reasons why this trade makes sense at this time.
1. The market is in a long-term bullish uptrend.
2. Tesoro’s stock is also in a long-term uptrend.
3. The company’s next earnings date and dividend date are beyond the expiration date of the option, so they should not serve as negative catalysts.
4. The option pricing indicates an 80 percent chance that it will expire out-of-the-money.
5. Tesoro’s stock has technical support at around the $83 level.

As the market continues to digest the big move in oil prices, savvy traders will continue looking for opportunities such as this one to try to cash in.