Sponsorship Link
Oil Prices Make for Profitable ETF Trades: Roger Wiegand
Source: Brian Sylvester of The Energy Report (2/14/12)
http://www.theenergyreport.com/pub/na/12577
Today's retail investors have more options than ever before, but there is a shortage of practical information on how to manipulate different investment products, be they ETFs, options or equities. Enter Roger Wiegand, editor of Trader Tracks. In this exclusive interview with The Energy Report, Wiegand discusses his methods for energy investment and how to set tailor-made time and price windows to realize solid gains.
The Energy Report: Roger, we are still in the early stages of 2012 and gas prices are near all-time lows, with a barrel of oil bobbing in the US$100 range. What approach are you employing to make money on oil without getting burned by gas, given that many names out there have substantial assets in both commodities?
Must Read
Roger Wiegand: We have three trades on right now. Our futures trade is an oil spread where we buy a window of opportunity on price, which allows investors to fix their positions according to their own price constraints and risk comfort levels. We are looking for an oil futures price to high of $120 a barrel (bbl) for May to June of this year. Oil is around $100.60/bbl and there is very good support for oil right now. Over the years, we have found that oil will move in a trading range of $4 increments. We are in the middle of those increments now. I call it $98.50-102.50/bbl. As the cycle and the calendar move forward, we are looking for a high of $115-120/bbl for the first half of 2012.
Follow us
For share traders, we have two positions in stocks, both exchange-traded funds (ETFs). One is ProShares Ultra DJ-UBS Crude Oil ETF (UCO:NYSE.A), and the other is Horizons BetaPro NYMEX Crude Oil Bull Plus ETF (HOU:TSX). The UBS Crude Oil ETF is a double-long position ETF on oil, meaning that if oil went up $1, investors would earn $2 on this particular trade. The Horizons BetaPro NYMEX, a bull-long ETF, is much the same. Normally, when we recommend a share in our letter, either an ETF or a company, our objective is to make +25% in 90 days. We can't always do it, but we do quite well.
TER: You trade all manner of ETFs: gold ETFs, oil ETFs and even a Canadian dollar ETF. Why do you find these instruments so appealing and what did you do before ETFs existed?
RW: Before ETFs, we would trade companies, using options and/or spreads on currencies and futures. It is very handy for a shareholder to buy an ETF because investors are basically buying an index or a bundle. Some of these holdings offer very attractive leverage; I like the ones that are x2 or x3.
One warning I would give is that there are so many ETFs on the market now that they are becoming diluted. We used to trade SPDR Gold Shares ETF (GLD:NYSE) for gold and iShares Silver Trust (ETF) (SLV:NYSE), but we do not recommend them any longer because they do not move as they did before. Other kinds of trades can give us a better position. SPDR Gold Shares and iShares Silver Trust have become elephants and it takes a lot of buying to create movement.
But, we are happy with our oil ETFs, and we like the Canadian dollar ETF because it is a way to park money in Canada, which we feel is a much better place than the U.S. dollar. Canada is a commodities-driven country and the Canadian dollar is strong with good underpinnings. We featured it a year or two ago in our newsletter and the traders that opted into it are now up over +20%. We also see the Canadian dollar going to 108.00 on the index. It is at about 100.48 right now.
TER: There is quite a media buzz about ETFs, but many retail investors do not have a thorough understanding of how best to trade them. Could you outline some must-have information for retail investors looking to play?
RW:Take the oil ETF, USB Crude Oil, for example. It is a double-long on oil. Normally what will happen with oil in the first half of any year is that it will start out slowly, go to a peak, then correct. There will be a correction when the refineries change over from heating oil to gasoline for the summer. If you can find two good long positions during the year-normally January to May, and September to November/December-and if you have a modest goal of making 25% within 90 days, each of those segments work quite well. You can do the same thing with gold. We have grain and corn ETFs too. The objective is to match up the ETF's price, buy it at the low and try to make 25%. Keep in mind those trades must fit the calendar cycles.
TER: What is the downside risk to ETFs?
RW: We do not look at gold and silver ETFs, but in our opinion-and I cannot prove it-the gold ETF does not have 100% of gold behind it for every share. If things got really dicey in the gold market, and they could as it is very volatile, there might be some difficulty in getting out quickly enough on an exit. There are probably better trades that you can work with to do that. The NYSE AMEX (NYSE.A) exchange lists the ETFs-you'd be amazed at the number available. People like them because they do not have to pick a company; you can just buy a market index sector, but some of these sectors will sit and not move. Sometimes an ETF or an index will only move modestly when the overall sector is moving a lot. You have to be careful.
