Sep
05
One bright spot in the portfolio these days is an exchange-traded fund (ETF) called the Horizons BetaPro NYMEX Oil Bear Plus (HOD), which double shorts the price of crude oil. Since purchase, as recorded in a June 12 blog post, it’s up 45%. That helps ameliorate some of the pain from those Nortel shares.
But I plan to put in a sell order for the ETF next week if and when a gain of approximately 50% is reached. The price of oil could keep falling to the marginal cost of production, which the LEX column in the Financial Times of London says is “around $70 a barrel.” But market forces rarely drive prices to their equilibrium in a straight line and if a reversal came now, it could be demoralizing to watch the gain evaporate when loses are piling up elsewhere thanks to the bear market.
Moreover, market forces are rarely left unmolested. Indeed, next week OPEC is meeting to discuss production cutbacks. And political disturbances could result in an upward spike. That would be a good time to go short again with the Horizons BetaPro NYMEX Oil Bear Plus ETF.
7 Responses to “ Unwinding bet against oil ”
Let me get this straight: you earned 45% in three months (congrats by the way) when the world is crashing down around you, and now you’re going to hold out for another 5% before selling?
Can I ask how you arrived at your 50% goal?
By Patrick on Sep 6, 2008
Patrick
Just for silly psychological reasons. I’ll likely sell at current prices.
LM
By Larry MacDonald on Sep 6, 2008
it might be an interesting bet to short the Bear Fund!
By Paul on Sep 7, 2008
Paul - if your intention is to short the Bear Fund, then why not just buy the Bull fund? You would have to pay interest on your short margin.
By WhereDoesAllMyMoneyGo.com on Sep 8, 2008
you have a point; i was just thinking that there might be more selling pressure on the Bear Fund if it starts tanking, hence the short; but you’re probably right that it really doesn’t matter whether one shorts the Bear or goes long on the Bull, it’s probably the same; thx
By Paul on Sep 8, 2008