investing in oil

[chopchoi]

I believe that the price of oil will continue to rise, and i would like to invest in oil. Is there some way that I can purchase a certificate that represents, say, 100 barrels of oil? Also, is there a way to buy an option to buy a certain number of barrels of oil in the future?

[Paluka]

Futures.

[chopchoi]

So, where do i go yo buy them?

[Paluka]

www.cme.com (http://www.cme.com) I guess

[DesertCat]

[ QUOTE ]
I believe that the price of oil will continue to rise, and i would like to invest in oil. Is there some way that I can purchase a certificate that represents, say, 100 barrels of oil? Also, is there a way to buy an option to buy a certain number of barrels of oil in the future?

[/ QUOTE ]

It's down $7 this week. Why do you think it's going higher?

[inishowen]

Futures trading is tough, bro, not a part time thing. Exxon (xom) and Chevron (cvx) both move basically with the price of oil. Granted, because they are stocks and not the commodity itself, you will experience market volatility along with volatility in the price of oil. Overall though, their beta (measure of volatility relative to the market as a whole) is about half what the broad market is. Check their charts vs the price of oil vs the S&P 500 and you'll see what I mean. Another more broad-based, inherently less risky, choice would be XLE which is a SPDR comprised of the top companies in the oil-oil services sector. With one investment you own xom, cvx and about 10 other oil related stocks representing a de facto bet on the future direction of the oil index. These 3 I've mentioned all trade options so if the underlying stock movements aren't sexy enough for you then you can get your gamble on with an option if you are convinced oil will move higher, quickly. Do your homework and good luck.

[crazy canuck]

I agree with the previous poster. It is much better to buy stocks that are dependent on the price of oil instead of futures. You'll have less swings and much lower transaction costs.

[chopchoi]

[ QUOTE ]
[ QUOTE ]
I believe that the price of oil will continue to rise, and i would like to invest in oil. Is there some way that I can purchase a certificate that represents, say, 100 barrels of oil? Also, is there a way to buy an option to buy a certain number of barrels of oil in the future?

[/ QUOTE ]

It's down $7 this week. Why do you think it's going higher?

[/ QUOTE ]

Because (1) the oil producers have the world by the balls and (2) the demand is rapidly increasing as China and India become more developed by the day. And long term, because the supply is limited.

[Glenn]

What makes you think that isn't already priced in?

[DesertCat]

[ QUOTE ]
{quote] Why do you think it's going higher?

[/ QUOTE ]

Because (1) the oil producers have the world by the balls and (2) the demand is rapidly increasing as China and India become more developed by the day. And long term, because the supply is limited.

[/ QUOTE ]

All these things have been true for some time. And oil prices have been roughly flat for 25 years, adjusted for inflation (http://inflationdata.com/inflation/images/charts/Oil_inflation_20050404.gif)

If you adjust the numbers for inflation it looks like betting on higher oil prices during a spike is a fools errand. In 1980, oil prices were close to $100 a barrel in 2005 dollars. Six years later they were $20 a barrel. In 1990 they spiked to $50 a barrel, but back below $30 in a year.

World oil prices aren't that much higher today than they were five years ago (http://www.globalfindata.com/articles/Oil_Is_History_Repeating_Itself.doc). What has happened is the U.S. dollar is depreciating in value, so while Oil prices are only mildly higher in Euros, they have skyrocketed in dollars. In fact, you can argue that most of the U.S. price spikes over the last 30 years have been due to the dollar declining in value.

That said, if you want to bet on a lower dollar by betting on higher oil prices, you'll probably be right as long as we are running big deficits. But there are certainly better ways to bet against the dollar than that.

[fxtrader]

You need to open a futures account with a futures broker just do a search Lind -Waldolk is one of the more respectable.

Once you have the account open call the broker and ask for quotes on light sweet crude options.

Pick the month you want and ask for a Call Option at the current market price of Oil.

So let say you think it will take 4 months for oil to go to $80 per barrel you will buy a Sept Call at the current price lets just say $50 this will cost you a premium say $4.00 per contract.

In real dollars thats $400 as each contract represents 100x.

So lets say you are right!

In sept oil is $80 your $4 option will be worth $30 (50-80)

Congratulations you just made $3,000.

[crazy canuck]

So let say you think it will take 4 months for oil to go to $80 per barrel you will buy a Sept Call at the current price lets just say $50 this will cost you a premium say $4.00 per contract.

In real dollars thats $400 as each contract represents 100x.

So lets say you are right!

In sept oil is $80 your $4 option will be worth $30 (50-80)

Congratulations you just made $3,000.



What about time decay?

[fxtrader]

The time decay will be $4.00 the price you paid for the option.

So your net return will be $2600 per option.

[DesertCat]

[ QUOTE ]
The time decay will be $4.00 the price you paid for the option.

So your net return will be $2600 per option.

[/ QUOTE ]

What's your return if oil stays at $50?

[crazy canuck]

What's your return if oil stays at $50?

-100% I think.

[stigmata]

The peaks that co-incided with the two gulf wars were very predictable, IMHO. Does anyone know about anyone making money on Oil futures (or whatever) at these points?

[Moonsugar]

Also, commodity index investing is really taking off. Several fund comapnies have funds that track commodity indices. GSCI is primarily energy so one of those funds may be of interest to you.

Interesting paper on diversification effect of commodities. (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=560042#PaperDownload)

[Ass Master]

Open a brokerage account through which you can trade options and futures on the Nymex.

[fxtrader]

You will make any profit on each option that closes above the strike price in this case we bought a $50 call option which gives us the right to call Oil at $50 (we paid $4 for this right) so if when the option expires Oil is trading at only $60 your option will make you $10 minus the $4 cost to buy it so you will net out with $6 or $600 per contract.

[NoTalent]

Take a look at the oil shipping stocks. I've seen a lot of those that give very good dividends.

[Pitbull3k]

Better off sitcking to index funds or other collective arrangements, instead of speculating on futures and options contracts, as the are HIGHLY volitaile, and require a substantial "bankroll", leave the futures trading to the arbitrageurs, and hedgers