Oil Volatility is Probably Too Cheap

In Wednesday’s webinar ‘2021 Trading Secrets Every Investor Needs to Know’

Frank Gregory (our resident DC Insider) pointed out that the 1st thing new President Joe Biden wants to do is rejoin the Paris Accords.

To many this might mean ‘oil is going to sell off.’

I personally think oil is going to have a strong rally in 2021 for two reasons:

  1.  Increase in demand as the economy turns on
  1.  Decrease in supply and exploration

Mr Biden is not going to cancel the use of oil,  or even fracking,  but in joining the accords and in making small steps to reduce exploration,  the price of oil can be greatly effected.

Think I am wrong,  recall the price action of Oil the first two years of Mr Obama’s presidency,  which also came with a stronger economy and more oil exploration restrictions:

WTI futures (light sweet oil crude futures traded on CME) doubled over 2 years from just over 46,  to just under 92.

This is why,  only a three weeks away from Joe Biden being sworn in,  I was surprised to see OVX,  the Oil VIX near 3 month lows:

Especially knowing that when oil prices rise,  OVX tends to go up.

I think the 1st half of the year is going to be one of the most bullish oil periods we have seen in some time.

With Oil Volatility relatively cheap,  I would NOT suggest playing in USO (it has rolling issues similar to VXX),  but playing directly in the Energy companies…

Good news,  VXXLE:  the VIX of XLE is also the cheapest its been in 3 months:

I would be a buyer of XOM,  CVX,  BP, and RDS mid-range call options.

The exact trade I would do will be covered next week in the Special follow up webinar Frank and I are planning for Sharp BETS subscribers next week.

If you missed yesterday’s webinar catch it here:  LINK.

Your Only Option, 

Mark Sebastian 

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