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Random Thoughts: Trading Around Energy

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Careful of geopolitical tensions when trading commodities.

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As I'm attending the first annual MarketWatch summit today, I wanted to toss some thoughts with hopes they add value. I'll tell ya, missing a trading session is like skipping a chapter in the world's wildest reality show. I'll be sneaking peaks as I can but alas, my postage will be limited at best.

Some top-line vibes in the interest of community:

  • I continue to "trade around" the short energy bet that I initiated a few weeks ago, selling blips and buying dips. I've rolled the majority of my paper (puts) out (of front month exposure) yesterday and covered the majority of the exposure into this morning's dip (with the intention of layering out further shorts into strength). My primary vehicles still include USO and Halliburton (HAL), among others.

  • I was a bit outsized on my bet, which had to do with slapping too much exposure on at one level. Lesson learned: Always allow for an ample margin for error when scaling into a trade.

  • One of the primary risks to the short energy trade is the potential for an uptick in geopolitical tension (Iran). Boots & Coots (WEL) (which specializes in controlling oil and gas well emergencies) may be a decent upside hedge and I picked some up yesterday for schnitz and giggles.

  • So it's said and so I'm clear, you always wanna lose money on your hedges.

  • One of the bigger stories that didn't get much play yesterday-and I A.D.D.'d it during my Buzz & Banter TV hit on Fox Business-was the CFTC plans for further regulation. One of the "potential caveats" in commodities was political pressure in an election year and this action fits the bill.

  • That may also weigh on the exchanges and I took a flier on some Chicago Mercantile Exchange (CME) puts with defined risk on the other side of $400 (which is a pretty massive level). This, too, was partially covered into this morning's slippage (with the stop in place on the leaves).

  • Of course, a stop is only helpful if you're there to elect it, which is precisely why I'll be lugging my laptop to this media confab. Balance right? Sigh…

  • Have we mentioned the importance of BKX 75?

  • As I said yesterday into the heat of the Lehman meat (LEH), I don't have a horse in that race right now. It feels funny not having a position in a sector I'm so intently focused on-sorta like that rope in gym class-but it's crowded and I'm not in the mood to flip a coin.


Answers I Really Wanna Know…


R.P.

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Position in wel, hal, uso, cme, vix
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