Oil crashes to pandemic lows then tankers get hit — geopolitical bounce play
Thesis
Oil has been in a massive slump, heading for its largest quarterly drop since the 2020 pandemic crash. However, the sudden attack on a tanker carrying Qatari crude through the Strait of Hormuz introduces real supply disruption risk. When an asset is this beaten down and a geopolitical catalyst suddenly appears, sharp short-covering rallies often follow. The combination of an oversold quarter and sudden supply fears makes this a prime candidate for a tactical bounce. We want to buy the initial breakout signal.
Strategy approach
Build a volatility breakout long strategy for USO (Oil ETF) on the D1 timeframe. Enter a long position when the price closes above the upper Bollinger Band (20-period, 2 standard deviations) AND the Average True Range (ATR) has expanded by more than 20% compared to its 10-day average. This indicates a sudden volatility spike from news events. Exit after 5 trading days or if the price closes below the 10-day simple moving average. Use an 8% stop loss based on the entry price.