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Thursday, January 18, 2007

Oil Trade


The trend is your friend in oil's recent 30% slide. A safe trade would be to go short the US Oil ETF (USO) and long Halliburton (HAL). From a fundamental basis, Halliburton has more limited downside than the actual commodity. The other trade would be to go short the ethanol producers (PEIX or VSE) and long Halliburton. If you have an option account, consider buying puts in USO, VSE, PEIX.

10 Comments:

Blogger Jason said...

What about going long on USO instead? Do you see more downside than upside in the near future?

1/20/2007 11:14 PM  
Blogger Big Ben said...

Jason,

I see more short selling in USO. A way to hedge that bet would be to get long HAL. You could also just go long HAL and buy puts in USO. Or just get long HAL. I am looking at HAL as a value play.

1/21/2007 10:26 AM  
Blogger Jason said...

Ben,

I would agree with long on HAL. Their balance sheet is pretty solid and the departure of KBR should eliminate any PR disasters in the future.

While they are looking cheap in regards to forward earnings, they are somewhat pricey in regards to book value.

I suppose this calls for due diligence.

1/21/2007 9:15 PM  
Blogger Big Ben said...

Halliburton still owns 81% of KBR. The "spin-off" will take place sometime before April 2007. HAL & KBR report earnings this Friday.

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