We continue to play the range bound crude-oil markets. Now, with potential deal with Iran very close to some resolution, we want to try and get back in. I think the initial reaction will be to the downside, with the market thinking the Iran is promising up to 1- million barrels of production per day.
If there is deal done or not is not really at issue. The US administration has far too much invested in this process already to walk away without some deal. But even if they get a deal, it is merely a framework. First, the sanctions are not going to be lifted until the deal is finalized, which could take months and months. Plus, we have a lot of groups here with a lot of clout that want to see any deal with Iran squashed.
Remember we do have a Republican-run House of Representatives and Senate. Add to this that it’s probably quite a stretch in the short-term for Iran to come anywhere close to being able to bring 1-million barrels to the market in any timely fashion. Producing oil is not like turning on a light switch. Much of their infrastructure has not been touched since the late ‘70s. We are talking millions of dollars and months of work will be needed.
The Trade
So, we are looking for a quick move down to the lows that were put in early December 2014 around $16.50 for our entry.
We signaled a long call spread, the May 1st (weekly) 18/19.5 call vertical for $0.30 or lower. This would afford us a reward to risk ratio of 4:1.
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