Profit from the fear

There's opportunity to profit now by making strategic oil plays

By Wall Street Media on MSN Money Aug 23, 2010 4:23PM
Written by Douglas Estadt

Long story short -- we think oil is too cheap. 


Recent misguided market fear is overshadowing the current opportunity to profit by making strategic oil plays.  While reading "Of Permanent Value" on Warren Buffett, I noted the section in which he explains  how many of his best investments were made during the down days of the 1970s when people were behaving as if the world was going to end. 


This mindset to seek opportunity in times of fear resonates with us.  Oil is only ever going to be more in demand while supply shrinks and investors may wish to consider these facts:

 

  • USL doesn’t carry only front month contracts like USO
  • You can sell Sept. 35 puts at 60 cents—if oil keeps falling and USL dips below 35 on Sept. 17, you would get put USL shares for 34.40, which is within 40 cents of its 52-week-low.
  • If oil halts its recent plunge and USL closes above 35 Sept. 17th, you collect a healthy premium of 60 cents/contract.
  • China and India continue to increase their already large oil use, adding to growing demand

 

For more on this topic, view the video below



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