Crude Awakening: Prices Soar Amidst Saudi Announcement
Oil prices surged as much as 8% at the open after OPEC+ announced it was slashing output by 1.16 million barrels per day.
Brent crude futures jumped 5.07% to $83.95 a barrel on that news, and U.S. West Texas Intermediate crude futures soared 5.17% to $79.59 a barrel.
The voluntary cuts will start from May to end 2023, Saudi Arabia announced, saying it was a “precautionary measure” targeted toward stabilizing the oil market. This surprise cut has brought oil back into focus with many market commentators suggesting we could see oil at $100 dollars a barrel.
This view is being bolstered by the reopening in China and the fact that their demand could well go back to the 16 million barrels a day in the second half of the year. If you are bullish crude and want to take advantage of this the following option trades can be used.
Buying a Call Option
If you believe the price will rise
Cost of trade $4,200*
(*$1000 per $ $4.2x 1000 $4,200)
Alternatively, you could buy a call spread to reduce the cost of the trade, but one thing you have to consider is you cap your upside by selling the call in the spread.
Buying a Call Spread
If you think the market has a chance of rising but at the same time have a target in mind for how far the stock will go
Cost of trade $4,200 – $1200= $3,000*
(*$1000 per $ $4.20x 1000 $4,200)
(*$1.20x 1000 $1,200 )