E Oil Services ETF (OIH) Offers Potential 51.52 % Return In 18 Days For Bullish Traders

The energy sector has had a great run since early April and that has flowed through into the Oil Services ETF – OIH which rallied from $23 to nearly $30 in the space of just over one month.

Since then, the ETF has had a significant pullback, dropping 9.24%.

With the stock pulling back towards the rising 50 day moving average, this could provide bullish investors with a nice entry point.

One trading opportunity for those traders with a bullish bias is a Bull Put Spread using the $27 strike as the short put and the $26 strike as the long put.

As of May 28th, this trade offered a 51.52% return on risk over the next 18 calendar days when using the June 15th expiry.

With the rising 50 day moving average currently around $26.40, this trade represents a good risk/reward for those betting that OIH will stay above this line in the sand.

The maximum profit on the trade would be $34 per contract with a maximum risk of $66. The spread would achieve the maximum 51.52% profit if OIH closes above $27 on June 15th in which case the entire spread would expire worthless allowing the premium seller to keep the $34 option premium.

The maximum loss would occur if OIH closes below $26 on June 15th which would see the premium seller lose $66 on the trade.

The breakeven point for the Bull Put Spread is $26.66 which is calculated as $27 less the $0.34 option premium per contract. Keep in mind that due to the bid-ask spread, you may not be able to get filled at these prices.

(Click on image to enlarge)

 

Looking at the chart above, if the ETF broke below the 50-day moving average, this would be a good place to place a stop loss and close out the trade.

 

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are ...

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Michael Molman 1 year ago Contributor's comment

Interesting thoughts on $OIH I have been looking for more opportunities in the energy sector.

Bruce Powers 1 year ago Member's comment

Anything catch your eye yet?

Michael Molman 1 year ago Contributor's comment

Yes $LNG and $KEX are two of my favirote holdings I have had them for a while. I believe the best opportunities can be found in the midstream energy sector.