Betting on Rising Oil With Options

NEW YORK (TheStreet) -- Everyone has seen commodity prices rocket higher in recent weeks -- a symptom of the liquidity bubble the Federal Reserve is feeding.

The central bank has made it clear that it will be holding rates at exceptionally low levels for the foreseeable future, pumping liquidity into the markets and causing the bubble to expand. We all know what happens with bubbles -- eventually they burst.

Right now, it's hard to say when that will happen. In the meantime, remember that the best way to play a bubble is to go along for the ride until signs emerge telling you to get out.

With that in mind, there appear to be opportunities in crude oil, which looks poised for a major upward thrust.

In recent weeks, oil has failed around the $80-a-barrel mark several times, and those who shorted it at this key level have been rewarded.

Once again we see crude oil knocking on the $80-a-barrel door. It has been my experience that each additional time a market attempts to break resistance or support, the higher the chance that it will succeed.

What I found particularly interesting was Tuesday's price action in many of the commodities. We saw the dollar up sharply throughout the day. Commodities wavered in the morning, but by midafternoon most had recovered. Oil and gold were back in the green for the day.

Clearly the dollar's demise in recent months has had a lot to do with the rally in hard assets. The fact that the market does not believe in any sustainable rally in the greenback in the near future was demonstrated by the price action Tuesday.