July 14, 2008, 6:00 am

Playing the Oil market!

by: The Financial Blogger    Category: Investment, Market and Risk
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As discussed in my latest column, over the past few years, it has become increasingly easy for anyone to play different strategies and markets that were unavailable only a couple of years ago. One of the best examples is surely oil!! It’s the story everyone has heard about. In the past year, oil has more than doubled and many reasons are given to explain the rise. Mainly, the constant demand rise (especially from emerging economies as well as China (not getting into the debate about China being an emerging economy today!). Also, a lot of blame has came from a lot of new investors now investing in this market. I say blame because mostly the rise of oil has hurt consumers around the world, but like any price movement, it’s possible to profit from it (more later!)

oil

But there also seems to be a growing sense that oil is giant bubble that will collapse one day or another. Possible? I certainly believe this thesis. Of course, it’s difficult to predict if the fall will come after oil has reached 150$, 200$ or more… We have all heard crazy predictions but it’s exactly when something is always expected to go up that they eventually go down.

So anyway, today I wanted to present 3 different ETF’s that give you the option of playing the oil market. First off, USO, one of the biggest ETF’s around, that generally moves very closely to the movement of the crude oil that we all hear about. It is a great way to get into the oil investments without all the complications of buying futures (margins, rolling your positions to avoid delivery, etc). As you can see from the graph above, USO has risen about 50% in the past 6 months, not a bad investment hey?

Then, I will also introduce 2 leveraged ETF’s. In the near future, I will discuss the pro’s and con’s of constant leveraged ETF’s (there are obviously some drawbacks). Basically, the aim of these funds is to replicate the return of an asset (Oil in this case), but double the return. So you can buy the BetaPro Bull Fund (HOU.TO) and it should return 200% of your return (minus fees). If you think Oil will go down, it’s time to buy the Bear fund (HOD.TO). As you can see from the graph the returns were a lot more volatile, but if you got it right 6 months ago, you would have enjoyed a 100% return instead of of 50%. But then look at the nice graph from the Bear Fund and you can imagine what would have happened if you thought 100$ for oil was way too much.

So that’s it for now! Best of luck in your oil investments!

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Comments

Don’t forget DUG for shorting oil on the AMEX.

I definitely don’t think oil is in a bubble or could be. There’s a finite supply of it. As we use it up, its price will go up. The question now really, I think, is what could ever make its price go down.

by: The Financial Blogger | July 14th, 2008 (10:38 pm)

I would say that price will go down if:
#1 We get more gas from Alberta
#2 We find more alternative to gas (i.e. electric car and other energy sources).

There are a lot of speculators involved in the oil price right now. People have been saying that we will be running out of oil since 1950. They might be right… someday 😉

Ha ha – one week later and oil’s price is down quite a bit. Today I saw it at $124.
So okay, let’s see how long this “dip” lasts:) It does boggle me.

by: The Financial Blogger | July 23rd, 2008 (10:25 pm)

Hey!
Maybe you should considering buying DUG and short the oil market 😉 hehehe!

I believe this “dip” is happening just to pacify the masses. Yes, I do think there’s a conspiracy when it comes to oil.

[…] And you could maybe wait for that point to jump in and go long oil (there are many ways to play it, here is a good article about ways to do so) but I would argue that this might be a good time to get involved. I […]