Call Ratio Backspread SCO - Bearish Oil Play

The Dollar is showing signs of strength which has already had an adverse impact on non-energy commodities... if it continues to rally, oil is likely to be adversely affected as well.

Here's one way to play it.

SCO is a leveraged inverse ETF on oil and can swing wildly when oil is falling. By using a call ratio backspread, we can virtually eliminate the downside if oil does not break down and capture an exponential upside if it does.

Here's the trade:

SCO is trading at $80.72
USO is trading at: $11.9

Short 1 June 17 $75 call at: $16.1
Long 3 June 17 $100 calls at: $3.4
Long 4 June 17 $110 calls at: $1.95

Breakeven price is approximately $111
Max loss is $2,700
If all options expire worthless the total loss would be $190
SCO at $150 would represent an approximate gain of 10x mas risk

Comments

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