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U.S. Oil (ETF) - USO - close: 32.53

04/13/13: The looming threat of a potential conflict with North Korea has lost any influence on commodities. Even traditional safe-haven plays like gold and silver are collapsing. Oil tumbled lower on Friday as well as investors worry over a slowing economy and what that means for oil demand.

Last week I listed the USO as a potential bullish LEAPS candidate if the oil ETF could break out past resistance and close above $35.50. Last week I also cautioned investors that the bearish case was a slowing global economy, which would reduce demand for oil. It appears that the markets are growing increasingly concerned about the slowing global economy. The growing parade of disappointing economic data is definitely giving cause for concern.

There is still a significant risk that Israel and Iran eventually start shooting at each other as Israel tries to stop Iran's nuclear weapons program. If that happens oil will definitely skyrocket higher. However, no one expects any Israel/Iran conflict until late summer. Oil could plunge to new relative lows before that happens.

Here's the plan. We will buy put options now at current levels. We can aim for a drop into the $30-29 zone. The USO has what appears to be significant support near $29.00. If and when the USO nears this support level we can exit our USO puts for a potential profit and switch to buying calls in anticipation of any rising geopolitical risk in the Mideast.

Buy puts now

BUY the 2013 SEP $30 PUT (USO1321i30) current ask $0.91

Chart of USO:

Current Target:$ 29.50
Current Stop loss: 35.05
Play Entered on: 04/15/13
Originally listed on the Watch List: 04/06/13