Yesterday, I laid out instruments investors can utilize to bet on oil price movements. I introduced readers to OIL and USO and gave two strategies on both instruments. Since yesterday, volatility has increased for both calls and puts making them more expensive. This is making betting on oil more expensive for long-only investors (those who buy puts and calls instead of selling them). Market data show that there is little skew in the at-the-money options but out-of-money calls are significantly more expensive that puts located roughly at the same distance from the current underlying price: (Source: Yahoo Finance) As Brent crossed the $28 mark and WTI is hovering above $27 per barrel, investors may be playing on the bearish side, while also hedging their downside by buying calls. Although they are more expensive today than yesterday, there are two advantages to them right now. First, if oil keeps sliding, volatility will mostly likely keep growing, offsetting losses in the price of the calls, while investors will be making money on the shorts. Secondly, if the price reverses, their losses will be quickly offset by gains on the options, which will become in-the-money relatively quickly (I suggest looking at options with a strike of $6 or $7 per unit for OIL). I find this very attractive. Keep in mind that I suggest buying options with expiry dates in January 2017. Alternatively, readers can bet on currencies on oil-exporting countries. I suggest focusing on two countries: Russia and Canada. As oil plummets, their currencies take the hit. In particular, Russian ruble has already lost about 40% in value since May, while Canadian dollar is down 15% over the last twelve months and over 30% over the last two years: (Source: Yahoo Finance) Russian ruble is plummeting on daily basis. Analysts from Bank of America Merrill Lynch estimated that the Russian government may have to devalue the currency by about 50% in the mid-term in order to balance the state budget: (Source: RosBusinessConsulting) The vertical axis shows the exchange rate (rubles per USD; the current value is at 80RUB per USD). The horizontal axis shows the price of oil (USD per barrel of Brent). The table shows the budget deficit as a percentage of previous year's GDP. Russian president Vladimir Putin targets the deficit to be below 3% of GDP. This means that the currency has to drop to about 140RUB per USD to do so - a 43% drop. In order to have no deficit in the state budget, RUB has to drop to a level of 210RUB per USD - a staggering 62% drop from the current level. Russian ruble reached levels of 80RUB - 90RUB a year ago (particularly, in December 2014). Going above 90RUB per USD is unprecedented since the fall of the Soviet Union. Here is how investors can play both currencies. Instead of buying or selling CAD and RUB against the US dollar, they can buy or sell ETFs. There are two names I recommend focusing on: FXC (Canadian dollar) and RSX (Russian stock market index). They both have good trading volumes and offer options: (Source: Yahoo Finance) Both tables show options on FXC expiring in June 2016. The price of the underlying is slightly above $68 per unit. Notice the well-defined skew towards the upside. Market Vectors Russia ETF (RSX) took heavy beating November of last year and is down 26% over the last 52 weeks: (Source: Yahoo Finance) May 2016 puts are quite expensive (the underlying is at ~$12 per unit): (Source: Yahoo Finance) What I suggest considering is buying May 2016 calls (either at-the-money or out-of-money - they are priced similarly, according to IV) on RSX and simultaneously shorting oil: (Source: Yahoo Finance) This way, if oil keeps going south, investors will gain on the short position an lose pennies on the RSX contracts (notice that the $14 per unit level was there just a couple of weeks ago and now it is priced at cents per dollar). On the other hand, if oil reverses, they will gain dramatically on the cheap RSX calls, while also taking some losses on the short OIL or USO position. The above strategies are a bit more complex because the instruments I recommended are not entirely dependent on oil moves and carry idiosyncratic risks. However, knowing how dependent on crude oil exports Canada and Russia (particularly) are, I can assure you that both country's currencies and the Russian stock market are currently extremely undervalued to the probability of an oil price surge. Moreover, all oil-based strategies I have presented are hedged. In this article, I have shown strategies suitable for oil bulls. These strategies are heavily skewed towards the upside in energy prices.