By Gavin McMaster at Talk Markets
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.
