How I'm Playing Thursday's Crude Inventories Number

This is another day I will mainly sit out as I expect the oil sector to take down the indexes after the inventory report (tomorrow at 10 AM). Anything less than 1M builds across the board will keep me away from shorting, but I'm hoping for a shocking build on either gasoline or crude to drive the sector down.

If the oil sector turns down and we still gain a percent on the averages, then I will get a little bullish but not unless/until. No commodity based rally will help us!

Always follow the Valero Rule when trading oil and let's target $71 as the oil break point today although I'd also like to see natural gas fall back below $6 as well. Don't forget about the usual head fake right after the report - I will be looking for whichever one of these picks goes the furthest the wrong way this morning to jump in with puts.

As a rule of thumb I am looking at oil at $68 (inflation adjusted) on its way down from $70 so I am looking back to where companies were on Jan 31st, when we were in a similar situation.

These are the oil puts I'm looking at:

MDR (1/31=$52.50) $60 puts for .60.

BHI (1/31=$78) $80 puts for $1.15.

OII (1/31=$60) $70 puts for $1.20.

BTU (1/31=$50) $57.50 puts for $1.45.

CNX (1/31=$72.50) $80 puts for .90.

SU (1/31=$82) $75 puts for $1.25.

IMO (1/31=$35) $36.73 puts for .75. (recent 3:1 split)

With 3 weeks to expiration, I also like the spread of the XOM $62.50s for .40 and the $57.50 puts for .50 but $59.50 has been a very solid floor so far.