Will the United States and Iran reach a peace agreement in their current war?
Will the Strait of Hormuz be closed again and for how long?
When will the stock market care? What’s happening with the bond market?
Is there a way to profit from violent movement in any direction?
The way I see it, the modern tools we have available offer us the opportunity to customize the “guardrails” around our portfolio. That is my daily, weekly, monthly and long-term mission.
Here I will describe “oil” through the United States Oil Fund (USO), the most optioned ETF in the space that tracks the price of that commodity. I see an opportunity that has the basic elements that seem favorable to me:
www.barchart.com
No, USO has not been a low volatility ETF for some time. See that rank IV in yellow above, though? It’s around 45%. That’s very high for a stock or ETF. But after all, this is based on oil prices. The key is that the IV range near 50% and not 100% tells me that this volatile ETF has moderated enough recently, thanks to a lull in hostilities in the Middle East.
That could change quickly. But for now, it’s a foot in the door for those who would like to position themselves to try to capitalize on A renewed OSU rebound OR a continuation of the recent decline. Let’s explore.
The USO daily chart is difficult to read. Not in the sense that the graph itself is difficult, but we know that it is a geopolitical football.
This chart shows a 20-day high and moving average, so it “should” fall. However, this is OSU in April 2026. I don’t say this often, but I discount the graph. Because what is a better “bet” here is not the direction, but the volatility. It will probably be high again soon.
www.barchart.com
This is the strategy I am discussing. It’s a “long choke” (although I prefer a “long combination” as it’s less graphic) and I’ll show you some sample combinations below.
First, here’s a definition, straight from the Barchart.com page that you’ll see for security purposes:
(Directional | Unlimited Profit | Limited Loss) The long strangle strategy anticipates that volatility will increase and the underlying security will move significantly in either direction. The long-term strangle option strategy involves buying a call option and buying a put option at a lower strike price. The maximum loss is the premium paid for the long call and put option (net debit). The maximum profit is unlimited, since, in theory, the value can increase indefinitely or go to zero. The long strangle strategy is successful if the underlying security breaks the range, trading below the downward breakeven point (lower strike – Net Debit) or above the upward breakeven point (higher strike + Net Debit) at expiration.
That brings me to a 2-hour chart you see below, which is not something I show here often. But in the case of USO, it helps me define a potential short-term price range, based on where it has been. At $122, I can see $140 as a price target on the upside and around $108 on the downside. I would call it “level one” because it is relatively close to the current price.
www.barchart.com
The other way to approach this is to decide that, since it would cost less, to get more money on the upside (buying OSU calls) and the downside (buying OSU puts). That also serves to offset some of the high volatility. Moderate, but still high.
To be clear, this is a fixed risk/high potential return/high risk of losing what you put in strategy.. The kind of thing I look for when my current exposure to stocks is quite low. I call this “making big plays with small amounts of money.”
In my opinion, without looking at option prices, those higher spread levels versus the recent price of $122 would be perhaps $150 and $100, with a roughly 3-month outlook. Now, let’s see what is possible using option tables.
www.barchart.com
There are many possibilities, but since this is advice on structure, not a specific trade (as prices will change by the time you read this), I went with a round number example. It’s easier for me to explain it and for you to visualize it.
www.barchart.com
The strikes I chose were $125 for the call option and $110 for the put option. The cost of options remains high, so closer strike prices partly offset the significant burden of imposing this. Calls are $14.50 (on 1 contact) and puts are $6.75, so that’s a $21.25 “bogie” to overcome.
Those BE (break-even) levels tell the story. OSU would have to come up with $146.25 to beat the calls plus the cost of both options. Alternatively, USO could fall to $88.75 and that would also be a break-even situation. The probability of making a profit, as shown to the right, is approximately 40%.
Like I said, “big fish with small amounts of money.” It is less about “making a trade” and more about trying to identify where returns can be made in a manic market, and how risky it is to chase that return.
The important aspect of this setup is the defined worst case. The most you can lose is the cost of the options. And here the USO is not really bought, although it could be. As always, investment choices are about setting boundaries around what would be considered an “acceptable” outcome. Then take your photos.
Rob Isbitts created the Roar Scorebased on his more than 40 years of experience in technical analysis. ROAR helps DIY investors manage risk and build their own portfolios. To view Rob’s written research, see ETFYourself.com.
On the date of publication, Rob Isbitts had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
