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Is there a way to take advantage of the rock bottom oil prices as an individual? Other than filling up your car?

  • Buy loads of futures for delivery in the future. If it increases, make a killing. But not sure how long in the future, so you decide accordingly. – DumbCoder Dec 15 '14 at 16:16
  • And if it is down then you lose or you take delivery of your oil! – AbraCadaver Dec 15 '14 at 16:54
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    "Rock bottom oil prices"? That's a huge assumption. Better than last year, sure, but I wouldn't bet that they won't drop again two weeks from now. Supply and demand, but predicting supply in the short term ain't easy, and in the long term I really hope demand starts to drop. – keshlam Dec 15 '14 at 17:24
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As others have alluded to but haven't said due to the lack of reputation points to spare, you can take advantage of oil prices by leveraging up and using as much credit and margin as the banks and brokerages (respectively) will lend you. People assume that the correct answer on this forum has to masquerade as conservative financial advice, and this is not advice nor conservative.

Futures contracts are readily available, but they are expensive to obtain (like a minimum entry of $4,450). But if this expense is no such object to you then you can then obtain this contract which is actually worth 20x that and experience the price appreciation and depreciation of the whole contract. The concept is similar to a downpayment on a mortgage.

You assume "rock bottom" oil prices, but fortunately for you, futures contracts will allow you to quickly change your bets from future price appreciation and allow you to speculate on future price depreciation. So although the union workers will be protesting full time after the drilling company lays them off, you will still be getting wealthier.

Long Options. These are the best. The difference with options, amongst other speculation products, is that options require the least amount of capital risk for the greatest reward. With futures, or with trading shares of an ETF (especially on margin), you have to put up a lot of capital, and if the market does not go your desired direction, then will lose a lot. And on margin products you can lose more than you put in. Being long options does not come with these dilemmas. A long march 2015 call option on USO ETF can currently be bought for less than $200 of actual cash (ie. the trading quote will be less than $2.00, but this will cost you less than $200), and will be worth $1000 on a very modest rebound in prices. The most you can lose is the $200 for the contract. Compared to $4450 on the futures, or $100,000 (that you don't have) in the futures market if oil really moves against you, or compared to whatever large amount of cash needed to actually buy shares of an ETF needed to make any decent return.

These are the most lucrative (and fun and exhilarating and ) ways to take advantage of rock bottom oil prices, as an individual.

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Probably the easiest way for individual investors is oil ETFs. In particular, USO seems to be fairly liquid and available. You should check carefully the bid/ask spreads in this volatile time. There are other oil ETFs and leveraged and inverse oil ETFs exist as well, but one should heed the warnings about leveraged ETFs.

Oil futures are another possibility though they can be more complicated and tough to access for an individual investor. Note that futures have a drift associated with them as well. Be careful close or roll any positions before delivery, of course, unless you have a need for a bunch of actual barrels of oil.

Finally, you can consider investing in commodities ETFs or Energy stocks or stock ETFs that are strongly related to the price of oil. As Keshlam mentions, care is advised in all these methods. Many people thought oil reached its bottom a few weeks back then OPEC decided to do nothing and the price dropped even further.

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A long call options spread. In this case, a bet that the USO ETF would recover to $35. You can see, I got in when USO was $28, and it's continued to drop, but it has till Jan '17 to recover.

The spread is set up to give leverage, when I entered the trade, a 50% recovery would result in a 200% gain, or 3X my bet. An option spread can be bought using any two strikes, and with different payouts depending on how far out of the money the strikes are.

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  • Thanks...trying to decide between a long call and a long call spread :) – Victor123 Dec 17 '14 at 20:48
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    If you know exactly how high and how fast oil will recover you can optimize the situation. The spread offers a higher leverage while actually lowering your breakeven, but capping your gain. I prefer to find spreads that offer a 5 to 1 return if not higher. 3 to 1 is the minimum I'd take, just to be in the game. – JoeTaxpayer Dec 17 '14 at 23:36
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I'm really surprised more people didn't recommend UGA or USO specifically. These have been mentioned in the past on a myriad of sites as ways to hedge against rising prices. I'm sure they would work quite well as an investment opportunity. They are ETF's that invest in nearby futures and constantly roll the position to the next delivery date. This creates a higher than usual expense ratio, I believe, but it could still be a good investment. However, be forewarned that they make you a "partner" by buying the stock so it can mildly complicate your tax return.

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I would suggest that oil stocks are going down due to reduced earnings predictions. The market may go too far in selling off oil and oil-related stocks. You may be able to pick up a bargain, but beware that prices may continue to fall in the short to medium term.

  • The question is about oil, not oil company stocks. And a large part in why the oil price is going down is likely a reduction in demand, not a sell-off. Unlike company stocks, crude oil is continually extracted and used up, at a rate of over 80 million barrels per day. (I don't have an exact current figure, but not too long ago the daily average was about 85 million barrels, or 31 billion barrels of crude oil per year.) – a CVn Dec 18 '14 at 9:37
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    92 million barrels, apparently, and still rising. – MSalters Dec 19 '14 at 0:34
  • @a CVn , the question isn't about oil, it's about how to take advantage of lower oil prices. Stock prices of oil companies vary according various signals including oil prices. I'm trying to explain how they might be able to find oil stocks that may be good value. – bobcomm Jul 7 at 1:13

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