Price Forecast:

Bullish Case: A bullish case emerges with potential stabilization in oil prices, supported by high historical returns seen in the DUG return surface for holding periods under two years. With decreasing implied volatility for immediate trades, a price rebound could lead DUG towards $40 levels as investor sentiment shifts.

Bearish Case: Continuing oversupply in the oil market, as implied by high volatility in DUG options, suggests a bearish outlook. The return surface indicates significant declines for short holding periods, pointing towards more downside risk and potential prices below $30 in the near term.

Potential Outcomes:

• Price Stabilization (25%): Short-term recovery leading DUG towards $39.
• Continued Downtrend (50%): Persistent oversupply sending prices below $30.
• Moderate Recovery (25%): Fluctuations around $35 with increased volatility due to geopolitical tensions.

Trading Oracle: Utilize a bullish DUG 34-38 call spread for January expiration, given lower near-term implied volatility (46.9%). This strategy offers high reward-to-risk (1:3) by capitalizing on potential short-term price rebounds, targeting profits if prices move towards the high $30s within 60 days.

November 22, 2024