Home > Editor's Pic > Crude prices plunge: Use an UltraShort ETF (DUG) to make 2-to-1 profits
 |  Add to Technorati Favorites| Follow Us on Twitter! Follow us on Twitter

Crude prices plunge: Use an UltraShort ETF (DUG) to make 2-to-1 profits

Today's Financial News - Posted October 15, 2008

DUG Chart

The global economy is screeching to a halt. Pretty soon, it will be obvious we are in reverse. That means oil prices will continue to plunge. Use an UltraShort ETF (AMEX:DUG) to profit from the downturn.

By Andrew Snyder

Baltimore – (TFN): Somebody better call up General Motors (NYSE:GM) and warn it about its huge mistake. The company, which is so huge that it takes a decade to react to an evolving market, is about to significantly cut the production of its full-size lineup.

It does not realize these are going to be some of the best selling cars in the next few years. Make more Hummers, not Volts. The company is making a huge mistake.

Last weekend, I saw something I have been waiting to see for a long time. Gasoline was selling at the corner station for just $2.99. Three years ago, I would have screamed with prices that high. Now, I am celebrating. More importantly, I am dusting off my Hummer. Those prices are going down even further.

So long Saudi Arabian riches

Thanks to fears of a strong global recession and larger-than-expected downturns in pivotal countries like China and India, crude prices are on the decline. Right now, a barrel of oil is selling for nearly half of what it did during its record-smashing peak just a few months ago.

But we have not seen anything yet. Crude prices will continue to fall. And if you invest accordingly, you can put some hefty profits in your pocket.

Earlier today, OPEC announced it has significantly reduced its oil-demand forecast. The group says it now believes the world will require 87.2 million barrels of oil each day next year, a decline of 450,000 barrels. It also announced its members will most likely cut production by one million barrels per day.

Today’s news solidifies the belief that oil supply has finally overcome global demand and a surplus is on the way. Crude prices will continue to fall.

As an investor, you have many ways to play this situation. You can invest in the companies that will do well when oil prices fall. But in a recessionary economy, that is a risky move.

A better bet would be to short oil producing companies. You can directly short companies like Exxon Mobil (NYSE:XOM) or you can purchase put options.

But what if you want to directly short oil prices? After all, shorting an oil-producing company is far from a pure play.

The best way to take advantage of falling crude prices is through the UltraShort Oil and Gas ProShares (AMEX:DUG). The exchange-traded fund (ETF) moves inversely to the daily fluctuations of oil prices at a two-to-one ratio. In everyday words, if oil prices go down two percent, the fund increases in value by four percent.

It is a pretty sweat deal when crude prices are dropping, huh?

The country is in the grips of a recession and the equity market is all over the place making buy-and-hold investors nauseous. I know it is tempting to keep your money on the sidelines, but it can be a costly mistake. There are gains to be made out there.

Invest in the UltraShort ETF and take advantage of crude’s decline. We made money as prices soared. Now we can make even more as they plunge.


Next Article: Could Apex Silver Mines Ltd. (SIL) go bankrupt?

Related Articles

 |   | Add to Technorati Favorites | Follow Us on Twitter!

Posted by Andrew Snyder · Filed Under Editor's Pic, Oil and Energy 

Be the first to leave a reply.

Your comments are welcome