Jeff Bishop of TopStockPicks.com is bullish on the future of oil over the next year, but finds that oil is overbought in the short-term and expects that to result in a pullback for energy producers. His feelings were confirmed on Monday, when an hourly crossover of the 13- and 30-hour moving averages produced a bearish signal; that makes for what Bishop called a “high percentage trade” that the sector is getting weak or about to fall. Bishop is using the Direxion Daily Energy Bear 3X ETF (ERY) as a leveraged play on the XLE, and then is building a position in XLE Oct. 13 $69 puts for a trade that could run for a few days up to several weeks. Bishop noted that he would stop out of the positions if the XLE breaks above $69, but felt it was more than likely that the XLE would drop $1 to $2 per share, creating a favorable risk-reward framework for the trade.
Jeff Bishop is lead trader at TopStockPicks.com, running short-term trading strategies primarily using ETFs and stock options. At the time this conversation was taped on Oct. 3, he had 2,000 shares in ERY and 200 put options contracts on the XLE as described in the interview. The Raging Bull podcast features experts from the site talking with Raging Bull editor Chuck Jaffe on his show, “Money Life with Chuck Jaffe.” You can learn more about Chuck’s daily hour of market and personal-finance chat at MoneyLifeShow.com; you can subscribe to the Raging Bull podcast via iTunes and other podcast providers.