Who's an expert on the "right" position

nitro · Feb 1, 2003

Okay,

First, some background - My wife is psychic.

Next, she thinks that crude and possibly heating oil is going thru the roof. In the case of crude, she thinks that it is going to $42 - $45.

The question is, given that you "know" that, what is the "best" position to take and still protect yourself, and why. Here are some examples:

1) Buy XOM or one of it's cheaper competitors
2) Buy QM (which month ?)
3) Buy a call option on XOM (which expiration ?) or one of it's cheaper competitors, e.g, RD (P/E, P/B, etc)
4) Buy XOM, sell the appropriate number of QM to hedge but still keep more upside than downside
5) Buy a call option on QM
6) Buy a calendar spread on QM
etc.

So, what would you do assuming QM goes to $42, and you want to have the best bang for your downside buck?

nitro

balda · Feb 1, 2003

I have no doubts about war

and after is see oil at $16.00
lucky all of you SUV owners
I wander if Bush owns one.

swoop[TR] · Feb 1, 2003

Just buy Crude Oil Futures Contracts and to protect yourself, you could take put options on these contracts at a level that you feel comfortable with (at expiration before or at futures expiration).
If you really want to play the crude oil story with stocks, XOM could be ok. I'm just wondering if you shouldn't be playing it with options altogether (would provide more leverage ). Again, it depends on your risk aversion.

nitro · Feb 1, 2003

Quote from swoop[TR]:

Just buy Crude Oil Futures Contracts and to protect yourself, you could take put options on these contracts at a level that you feel comfortable with (at expiration before or at futures expiration).
If you really want to play the crude oil story with stocks, XOM could be ok. I'm just wondering if you shouldn't be playing it with options altogether (would provide more leverage ). Again, it depends on your risk aversion.

There is more to a position than it's leverage - there is also it's flexibility.

For example, I am considering putting on a synthetic call on QM. This way it will be easier for me to lock in profits for her (by turning the position into a straddle,) while at the same time allowing room for the position to continue to be profitable (albeit at a slower rate.) I prefer this type of position management to the "trailing stop."

BTW, what does the [TR] stand for?

nitro

dgabriel · Feb 1, 2003

Get her an 800 number, and advertise.

nitro · Feb 1, 2003

Quote from balda:

I have no doubts about war
and after is see oil at $16.00
lucky all of you SUV owners
I wander if Bush owns one.

nitro

nitro · Feb 1, 2003

Quote from dgabriel:

Get her an 800 number, and advertise.

Mrs. D?

hmmmm, I'll suggest it to her.

BTW, would she sell her psychic services to traders or to anyone?

nitro

hardrock375 · Feb 1, 2003

Quote from nitro:

BTW, would she sell her psychic services to traders or to anyone?

Ask her. I mean, she IS the psychic.

nitro · Feb 1, 2003

Quote from hardrock375:

Ask her. I mean, she IS the psychic.

Touche!

nitro

swoop[TR] · Feb 2, 2003

Nitro, good call on flexibility. I hadn't noticed you were the poster. Well, it seems you could play the oil futures story many different ways, and obviously you would want to have the best risk/reward scenario. The synthetic call seems to be the best scenario IMO. Although, what asset would you choose to go long? XOM or Crude Oil Futures?

TR...ahha! That's my edge on the market