This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Oil Prices Get Volatile -- Here's How to Play It

NEW YORK (TheStreet) -- Oil is trading higher today, with January futures up 84 cents at $86.72 per barrel. Volatility has come in over the past several sessions, and a period of quiet activity may be coming to an end.

When it comes to oil, these periods don't tend to last long. Oil is clearly being pulled in two directions: the sluggish economy dragging prices lower, with the instability and violence in the Middle East pulling prices up.

Although Israel itself does not directly influence oil prices, any escalation in violence is likely to lead to panic buying in oil. And that could drive a rally.

In addition to the fear premium, it appears oil may be carving out a bottom on the daily chart. The January contract has traded sideways around the $86 level since Oct. 24. Unable to break out to the downside, odds are now starting to favor some upside, especially if Middle East tensions continue to rise and grab headlines.

I certainly would not want to go into the weekend short oil because the geo-political-event risk is too high. In short oil positions, I would recommend getting flat or tightening stops. In short options, spread those positions to limit risk.

For those who agree with me and think we may see some upside in oil, below is a limited-risk option play to try to take advantage from an increase in prices. As always, feel free to contact me to discuss alternative ways of constructing a trade based on your market views. Please note today is Nov. 16, and all trade data is based on the most recent information.

Buy 1 February crude oil 90 call for 300 or better good until canceled.

Risk on trade: Risk is limited to premium paid (300 = $3,000), plus a $45 R/T commission inclusive of all fees.

Profit potential: unlimited.

Notice I have used the February, rather than the January, call option. The February has 62 days until expiration, thus allowing more time for bullish development, and the position will suffer less from time decay than the January. In addition, February futures are trading higher than January at $87.34 as of this writing, putting the call less than $3 out of the money.

Futures and options trading is inherently risky and unsuitable for all investors. Past performance is not necessarily indicative of future results. Stop-loss orders intended to limit losses to certain amounts may not be effective because market conditions may make it impossible to execute such orders.

Commodity Futures Trading Commission disclosure for licensed brokers: This material is conveyed as a solicitation for entering into a derivatives transaction.

Matt Zeman is a trader at Kingsview Financial. He began his trading career as a runner in the grain pits at the Chicago Board of Trade before becoming an arbitrage clerk. Eventually he started trading equity options and stocks. Matt now is a full-time futures broker. He has been a frequent guest on CNBC, Fox and Bloomberg, and provides his views on the stock, bond and futures markets for financial media including Dow Jones, the L.A. Times and The Associated Press. Matt is a member of the Chicago Board of Trade, and carries series 3, 7 and 66 licenses.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,912.11 -70.48 -0.42%
S&P 500 1,969.95 -8.96 -0.45%
NASDAQ 4,442.6980 -2.2110 -0.05%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters