Missed Oil’s Runup? You Can Still Profit!

The best solution for low oil prices – is low oil prices!

Oil was very weak in the first half of 2020. It slowly rose to $45 in late December. As economic indicators slowly inched up the Dallas Fed conducted its Q3 Energy Survey.

The survey asked 166 energy firm executives where oil prices will be going forward in the next six months. The average price from the survey was $43.27 per barrel by year-end 2020, and by Dec 31st it was at $48. As of Mar 1st, oil has risen to $60.

On Mar 5th, OPEC+ surprised analysts by announcing that it would continue restricting oil production. Oil futures shot up after the announcement.

This could mean higher prices going into the near future. You can take advantage of this continued rise by selling puts on the USO ETF.

USO has risen steadily from $40 on Mar 2nd to $44 on Mar 5th up 11% in the three-day period. There is still some upside potential for the ETF going into Q2 of 2021.

Profit from continued strength

By selling puts, you will profit when the price of an underlying stock or ETF goes up or even sideways. You could also see profits if you buy a call.

However, if there are circumstances that change the market during that time and prices retrace, then you would lose most, if not all of your investment.

By selling a put, if there is a brief decline, the shares will be put to you, but you won’t lose your entire investment. The shares still have value, and you can sell a call against them to protect you from further downside risk or earn profit with a return to the upside.

The downside likelihood, in the short-term, doesn’t have a high probability due to the cuts OPEC+ has implemented.

But U.S. oil companies will start to activate those wells that were shut down during the pandemic-induced decrease in 2020. U.S. oil companies need about $50 price point to be profitable. It will take weeks or months for those wells to come back online.

Additionally, the cancelation of the Keystone pipeline will have a major impact on the price.

Oil will have to be shipped by truck or railcar limiting the quantity to be moved and increasing the transportation costs. Because of this, food and other goods will also increase because of the price of oil.

The demand for railcars and trucks will surge thereby increasing the cost of those goods.

So, for the near future, oil prices should rise until the supply has increased enough to meet demand. Selling puts is an excellent way to profit from the situation.

Recommended Articles

Renewable Power is Cheaper, but Massive Power Bill Spikes Will Happen Anyway

Most electricity today is provided by burning oil and coal. Yet the world is preparing for the eventual phasing out of fossil fuels and the gradual implementation of eco-friendly renewable

6 Smart Ways to Invest Your Emergency Fund

The first rule of financial planning is that you need to have an emergency cash reserve which is sufficient to cover your living expenses for at least three to six

Warren Buffett: ‘I Blew It’ by Not Investing More In This Tech Stock

Warren Buffett’s Berkshire Hathaway has steadily been buying up more shares of Amazon. Berkshire recently increased its stake in the e-commerce tech giant by 11%, the company revealed in a

Could Heartburn Medicine Actually Give You a Heart Attack?

The symptoms of heartburn can make you feel like your heart is on fire, but taking medication to soothe it may put you at a higher risk for a heart

6 Frugal Habits That Can Make You Rich

Some people pick up frugal habits early, learning from their parents or grandparents. Others may develop the habit of frugality after going through financial troubles. Frugal people’s view of money

5 Crucial Money Decisions If You Are Forced to Retire Early

Forced retirement is a problem many folks are grappling with these days. Around 37% of retirees in the country leave work earlier than they had expected, typically due to health

6 Tips to Cope With a Job Loss Just Before Retirement

Workers in their 50s and 60s are facing the prospect of getting laid off just before the retirement door is about to open in front of them. According to a

Stop Osteoporosis in Its Tracks with These Bone-Building Foods

Osteoporosis literally translates as "thinning of bone." It is a medical condition that results in the reduction of bone mineral density and bone mass, as well as deterioration of bone

A Weekend at This Luxury Hotel Costs More Than a Typical House

As of July 2019, the average price of a hotel room in the United States was $135 a night. Renting a hotel room in a large metropolitan city costs $236 a

4 Reasons You Should Cancel or Downgrade Life Insurance

Life insurance is like a parachute. There are no second chances if you need it and don’t have it. But life situations and finances change all of the time. Here

Wash Away Sinus Congestion and Allergies with This Ancient Remedy

If you live with chronic sinus issues, you will be very familiar with consistent facial pain, clogged nasal passages, and a sticky throat. Allergies are another common complaint, which bring

Here Are the Seven Most Valuable Gems in the World

Diamonds are inherently worthless, believe it or not. Before the late 1800s they were extremely rare, which made them valuable. Cecil Rhodes found plentiful diamond mines in South Africa and