Advanced Trade: United States Oil (USO)

We saw Oil volatility explode last week to the point that it hit 2008-type panic levels. When a vol index, no matter the product, gets into the 80s it is time to sell. While implied volatility (IV) has come off a touch it is still insanely expensive and likely completely topped out. However, typically a top in volatility does not mean a bottom in a product. It signals the beginning of a bottom, but not the end. I think we see oil creep lower from here.

I would like to play a name like United States Oil (USO) to move lower, but in a way that I am unaffected by what I think will be a drop in IV in USO. I would look in a margined account to trade a bearish 1 by 2 put spread where I buy 1 near the money put and sell 2 further OTM puts. As I want to set up defined risk trades for Real Money Pro, I would look at executing a broken wing butterfly for a credit. A broken wing fly is like a 1 by 2 spread except it has a floor set in....94 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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