Oil has been one of the worst assets over past weeks. On May 22nd we outlined our logic for the short oil trade. We suggested:

“we feel it could be “prudent” looking at some downside hedges or direction bearish bets.”

Our trading view was to buy the 12.5/11.5 put spread in July, with known downside risk but a nice risk profile given our view. Oil is now reaching the first support at the 55 level.

Not only has the price of oil decreased, but volatility has exploded. Below is the chart of the USO US implied volatility. The put spread we suggested on May 22 has been “boosted” by the move in vol as well as the price direction.

Having gained some 250%, we would actively look for taking chips off the table, at least for the short term. For the still bearish oil crowd, we would roll down the position, lock in some nice profits and use the rest for a new put spread.

What a nice way to finish Friday!

Source, charts by Bloomberg