Oil is a commodity that’s always in demand. However, since geopolitical conditions massively influence the commodity’s prices, there’s always a certain risk involved. There are many ways to play the cards right and earn maximum profits through momentum trading.
What Is Momentum Trading?
Momentum trading is quite easy to understand theoretically. However, playing it to earn maximum profits is an art you’ll gradually learn.
When a trend is picking up steam, you invest in it early, estimating it to move upwards. That’s momentum trading. The twist is that whatever moves upward falls too. Hence, momentum trading requires knowledge and understanding of when to buy and sell.
How to Trade Momentum on Oil to Earn Profits?
Momentum trading is currently ideal for oil due to the recent geopolitical situation. The Russia-Ukraine war is ongoing, and UAE announced increasing the supply. These developments are causing fluctuations in the market. However, the best way to invest in oil is through the United States Oil Fund ETF.
USO, an Exchange-Traded Fund (ETF), invests through West Texas Intermediate (WTI)’s future contracts. WTI is the American oil benchmark. Since 2021, USO’s prices have risen due to inflation news.
The next thing that helped soar oil prices was Russia’s invasion of Ukraine. As the troops surrounded and the global news saw the coverage of the scenario, the oil prices surged.
If that’s not when you had your chance, you still have a way to jump the wagon. Buy the USO at any price lower than $75.
The scenario of the Russia-Ukraine ceasefire might turn the game around, and that’s when it’s extremely important to ensure you play the game right. When you do so, the losses might not cross enough to harm your profits.
Use put options on USO as a hedge on rising prices. As USO increased, the premiums have slightly decreased on put options. They are still a worthy investment, and many investors still hold onto them.
If you increase your USO shares purchase, the risk also increases. However, you can use a stop-loss order with your broker to minimize the loss. 10% to 15% below your initial investment is wise.
You can also use put options to make profits when oil prices drop suddenly due to short-term share dumping.
You can use all these strategies to earn profits in commodities, especially with current inflation and war situations that will likely prevail for a few months.
Final Thoughts
Oil is one of the best investments today as the geopolitical and economic situation worldwide is unstable. However, this investment is quite risky, and you must play it right to earn maximum profits and even limit your losses. Investing in USO with put and call options trading can help you in this momentum trading and earn great profits.
