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I would agree that fundamental doesn't support the rally for now. But short future contacts outright is not a smart play, IMHO. Cuz it's still a bull market. And God forbid someone start a revolt in Saudi. My suggestion, long OVX, and use options.
Oil's volatility and it's price are positvely correlated, unlike for the S&P 500 index, where the correlation is negative.
Selling a call spread is how I would short oil, volatility is high and, assuming you don't make it a big position, you won't get massacred if the price spikes since you're long the higher strike.
This is a really crazy environment because the probability distribution has become bimodal, either the shit keeps hitting the fan and it goes to $130, or stuff calms down and we're back at $85. And volatility is already expensive, so it's not like you're going to buy a straddle (I'm actually short volatility right now).
Hmm, OVX, as oppose to CVF, is calculated using options on USO. So I don't know how meaningful the correlation is. To some extent, I would agree that crude is presented with the binomial case, you mentioned. According to CFTC, speculators has accumulated a large position in crude future. They won't be able to take delivery, based on Cushing's situation. So maybe not in the particular case of OVX, but long volatility as a long shot using options seems bi-winning to me, when either market goes to 120 or 90...
Flame on.
60k new longs were added last week by funds based on the CFTC reports. Funds have not been this long oil in about a year or so back more. Also they have added length 5 weeks in a row.
Feel free to short it, just know that you may get run over by the freight train of global money managers.
hmm, thats kinda the point. speculators net long over 200,000 contracts. Thats 200 mil bbl of oil, with no place to store, given Cushing is at capacity (38.6 mil). They will have unload those contracts, cuz they won't be able to take delivery. Of course, story can change if east provinces in Saudi start to revolt... But I agree with you, as I mentioned above, that shorting future contract outright is not a smart play.
UCO is trading at 56 as of Friday - a put spread of 12-13 will net you 20 cents on the dollar (expires march 18). All oil has to do is not crash in two weeks....
I bought UCO a week ago when it was 11 and change. then it did an awesome 4-1 reverse split (sarcasm) and I was tempted to sell but held on. Good thing. I'll take a 20%+ gain in a week. And with it being double leveraged and the Saudi's going from bribing protesters to banning protests entirely, I feel something is about to go awry.
Thing about trading oil, at least while I'm in college and on a college budget, is that it's bittersweet. It's nice seeing my stocks and ETF plays jump. But it in no way makes up for taking it in the chin at the pump. I guess it's better to look on the positive side and say I'm at least cutting into my losses a bit while my classmates bitch about the prices of gas going up...
That's my health insurance plan - just have 10 percent of my money in HMOs. Long term I'll beat any cost increases I see.
Victor?
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