If I think USO will be trading under $32 or above $40 when the Jul 10 options expire, what is the best play?
You're going to have to accept that your break-even range will have to be bigger than 32-40. For instance, buying a 32/40 straddle at current prices, your break-even prices will be 26.04 on the downside and 45.94 on the upside. You could also buy an iron condor position and reduce the range that you must be outside of to make money. Obviously, you will give up some of the upside with this trade. The 40/42/30/32 iron condor has break-even prices of 30.66 on the downside and 41.33 on the upside. This is closer to your stated target prices than the strangle. However, you will be risking $133 to make $67 vs the $463 risked with the strangle that has unlimited upside.
Yeah the first reply cnfused me as well. It depends how agressive you want to be. You can short a fly, long straddle, or as mentioned above, long strangle edit: ok person above was more helpful