The set-up: The United States Oil ETF (USO) is a proxy for oil, and oil made an extremely strong move – well over 10 percent in less than two weeks – at the end of July. Now it’s consolidating.

From a purely technical standpoint, I think this is a great short-term trade. USO made a double-top around the 10.20 level and has been bouncing off that level. Now the hourly indicators are starting to roll over.

The play: I am in the August 18 $10.50 puts – I have 500 contracts bought over the last few days – and I am looking for a 5 percent decline in USO well before I have to worry about the expiration date. I’ll stop out if oil makes a new high on this run, which would be around $10.35 for USO.

I’m also adding the VelocityShares 3X Inverse Crude Oil ETN (DWT) to the watch list at Top StockPicks.com, and am likely to use it if I see oil bounce off the top again.

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   Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, primarily using leveraged ETFs.  At the time this was published on RagingBull.com, he held 500 August 18 $10.50 puts on USO as described here; he had no open orders for additional options, though he was considering adding to his position. He held no shares of DWT, but had added it to his watch list.

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