Is gas/oil reaching a short term top? How to play it now.
Answers
678 points
BoxCar answered one year ago …
Do we see our gov't acting responsibly to alleviate pressure at the pump? NOT
Anyone with a brane realizes we could immediately reduce costs by slowing down,
Have we seen even a 10% reduction in truck speed limits? It'd immediately like
RIGHT NOW cut the cost of Diesel 20% from $5 to $4 since all trucks have one
thing in common- a flat backend for loading purposed that ensures a suction that
is proportional to velocity squared. 90% velocity means .9x.9=.81 energy saved.
Again, the message is our gov't ENSURES we have high gas prices so that OIL
is economical to extract from our western state's oil shale & tar sands. Change
this gameplan and gas/oil could plateau but not until then- what did we think'd
happen if we put oil executives in charge of the chicken coop? D U H
190 points
HoughtonAndAtkeson answered one year ago …
When the possibility of war breaking out between Iran and Israel arrived, we thought it was a remote possibility. But in the past three weeks, the war issue has stayed on the front burner, as Israel has performed test flights over Iraq and Iran has readied its missiles.
All we can say about this is we strongly hope war does not break out. But as long as traders believe it is possible, oil prices will remain at elevated levels and serve to hold our market and economy in a depressed state.
In the meantime, call options on oil and gas stocks are a great way to play this. Call options act as surrogates for the underlying stock. For an example as an illustration only, imagine you wanted to own 100 shares of Exxon Mobile (XOM).
XOM is currently trading around $85, which means 100 shares would cost you $8,500. Even if this weren't a volatile market, that's a lot of money.
But for a fraction of that, using call options, you can control 100 shares of XOM. Again, for illustration purposes only, if you bought a contract XOM January $85 calls now selling for about $7.50, you would only need to shell out $750 (remember, one option contracts controls 100 shares so all prices are multiplied by 100 to get your total output, plus commission costs).
What this means is that by expiration day in January 2009, you expect XOM to be trading for $85 or better. If that's the case, you can profit in a couple of ways.
The call option gives you the right to buy XOM at $85, regardless of what it's trading for on the open market. Let's say by January 2009, XOM will be valued around $100. You can buy the 100 shares your contract entitles you to have for $85 and turn around and sell the stock for $100 on the open market for a $15-per-share profit.
Or just as easily, it's likely that the value of your call options will have skyrocketed to, say, $15 (or $1,500 for the contract). You can close out the call options prior to expiration and pocket the 100% gain.
If XOM is trading below $85, then all you've lost is some or all of your $750 output, which we think is far better than risking $8,500 in this market.
