In case you want to play crude oil, I found a couple of instruments you can utilize for the mid-term. I have also come up with a few strategies that can give you an optimal return for every dollar invested. With Brent hovering above $30 per barrel, this play be especially attractive. (1) iPath S&P GSCI Crude Oil TR ETN (OIL) (Source: ETF.com) According to the website, "OIL is large and liquid, offering straightforward oil futures exposure in an ETN wrapper. It has over $300M in assets, so closure risk isn't an issue, and it trades well in small and large quantities. This means investors can focus on the business at hand: exposure to oil prices. OIL uses the most basic method; namely, near-month futures contracts (spot oil is effectively uninvestable). OIL's index rolls expiring contracts into the next-nearest month, a straightforward method also used by rival fund USO and our benchmark. The downside of this approach is heightened sensitivity to negative roll yield when WTI oil futures are in contango. Still, this method of exposure is popular with investors. OIL's ETN wrapper means it's backed by Barclays' credit, but we see low counterparty risk currently. OIL investors get 1099s at tax time, not K-1s". This how the fund performed over the last year: (Source: ETF.com) Obviously, the units' value is down as Brent has lost significantly since 2014. My calculations have shown the following results on the ETF's volatility: (Source: Google Finance. Calculations by author) As you can see, volatility picked up in the past year and reached a stunning level of ~46% per year. Now let us go over the strategies I present. Strategy 1: Buy units at current prices and hedge the downside with January 2017 puts with a strike of $5. The iPath S&P GSCI Crude Oil TR ETN is currently trading at $5.51 per unit, while the puts are $1.05 apiece, according to ask prices provided by Yahoo Finance. If you buy 100 units, the total cost of this strategy will be around $660 (fees excluded). With an annual standard deviation of ~46%, the expected return is over 20%, provided that oil does not swing a lot higher in the next twelve months. Conversely, the maximum loss over the twelve-month period should be no more than 7.7% (the difference between the current market price and the put's strike price). Strategy 2: In the event you are looking for more leverage, you can buy an options straddle with a strike price of $5 for both instruments. The current cost of the strategy is $2.80 ($1.75 for the call option and $1.05 for the put). Both options are expiring in January 2017 and have the following payout chart: (Source: optioncreator.com) This strategy will become profitable, if the price of the underlying either rises above $8.3 or goes below $2.2 per unit (fees excluded). Both price points are outside one standard deviation, based on the latest historical calculations. This means that there is roughly a 32% chance of success. The implied volatility for both options is currently at 54% - 58% which means that the market is expecting higher volatility going forward. The key advantage of this strategy is that it is cheaper (only about $280 per 100 units) than the hedged long strategy described before. On the other hand, it is riskier in that the position is more prone to Delta movements and requires more "escape velocity" to become profitable (need to cover a $2.8 cost vs. $1.05 cost for the first one). The major bet here is directional. (2) United States Oil ETF (USO) This ETF is a good play for those looking forward to exposure to American oil. According to ETF.com, the United States Oil Fund holds near-month NYMEX futures contracts on WTI crude oil. USO, among the largest and most liquid oil“a great vehicle for riding short-term moves in crude prices” ETPs available, delivers its exposure to oil using near-month futures. USO's huge asset base waves away closure risk, and its massive liquidity makes trading a snap. USO gets exposure to oil using derivatives, like all oil ETPs. Derivative returns can vary greatly from spot oil prices, but spot oil is uninvestable. USO holds front-month futures contracts on WTI, rolling into the next contract every month, just like our segment benchmark. This method is particularly sensitive to short-term changes in spot prices, but can also result in heavy roll costs. That makes USO a great vehicle for riding short-term moves in crude prices, but long-term holders may want to look at other options. Investors can also buy options on this instrument. Just as with OIL, I am looking at long-term option contracts because I believe crude oil will move significantly in the next twelve months. As a results, OIL and USO will also move. Here is the options table I got from Yahoo Finance (the price of the underlying is $8.49): Notice the well-defined skew in implied volatility towards the downside. Implied volatility is roughly comparable between USO and OIL. Now let us go over the strategies I keep in mind. (1) Long stock and long puts If you are bullish on WTI, this is the best deal you can get. The problem is, puts are relatively expensive as shown by the implied volatility (skewed). I think buying puts with a strike of $7 is the optimal solution here. This strategy costs around $940 per 100 units (excluding fees). Investors will be in the money, if the ETF goes above $9.40. The maximum loss here is about $235 (or $2.35 per unit), while the upside is unlimited. (2) Long Straddle With this strategy, investors buy puts and calls with the same strike simultaneously. I suggest that investors buy puts and calls with a strike of $8. This strategy costs about $3.30 per unit (or at least $330, fees excluded). This strategy carries more implied leverage but investors need a greater upside or downside move (above $11.80 or below $4.70). This implies higher volatility - about 40%-45% on an annualized basis. I think that playing oil in 2016 is a good idea. This instrument is definitely going to be volatile over the next twelve months, and I think that sellers have mispriced options by underestimating the implied volatility. I am personally in favor of straddles.