John Jagerson

Profit From Oil Prices With ETF Options

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2. Growth

If growth returns to the United States and the global economy, demand for oil and energy commodities will rise. This demand drives up prices.

You can see the effect of economic growth on the price of oil during the last two economic expansions in the late '90s and mid-2000s.

3. Diversification

This is an important principle to integrate into a portfolio strategy. It is one of the few things you can do within your trading accounts that only provides benefits without disadvantages.

Diversifying into commodities is one way to include an asset class that has limited correlation with stocks. This means that an investment in commodities could smooth your overall portfolio returns in the long run. Learn more about building a diversified portfolio.)

Options on Oil ETFs

Traders interested in oil but looking for more leverage should look at the options on the USO. (Learn 10 Reasons to Use ETFs When Trading Options.)

Because the volume or liquidity is so high on the ETF, the spreads are fairly tight in the options. This is good because higher spreads add trading costs.If you were bullish on oil, calls or short puts are a simple single-leg option trades that could profit from even relatively small moves in the ETF.

This article originally appeared on the Learning Markets Web site.