Saturday, December 26, 2009

What is the best way to play the spike in oil in the stock market?

I have read two reports saying its headed for $95-$100. Simply, I want to know if there are better ways than just owning shares of oil companies. What other products are out there? Thanks for your input.What is the best way to play the spike in oil in the stock market?
There are mini oil futures contracts which are 1/2 the size of a normal contract. So you only need a few grand to play. However, futures is a difficult instrument so I'd advice against it.





XLE and OIH are common symbols used to play the rise and fall of oil.





Currencies is another but that is way out of the scope of this post. Think about it, if your country is taking in a lot of dollars (oil is traded in dollars), you need to convert those dollars into the local currency so you can spend it. Naturally, the currency will go up.What is the best way to play the spike in oil in the stock market?
There is no way oil will trade over $90 by December. If you want to buy an option, don't go so far out of the money. Do some research and realize who the oil players are... OPEC is not dominant. Look at current futures. Think about what demand does as winter comes in the northern hemisphere.
Open up an options account (like options express) and buy the December calls at $90. You risk much less than an actual Futures contract which costs, for Oil, about $10,000 after margins.


You can make some real money too, for every 2 cents over $90 Oil goes, you're making $100.

No comments:

Post a Comment