Blogs & Comment

Unwinding bet against oil

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, its 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 Londonsays 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 bedemoralizing 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 PlusETF.