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Oil Price Volatility: Profit from the fluctuation

Posted April 4, 2008

“Gas consumption continues to rise. So how can you profit from these divergent moves in energy markets? Easier than ever before actually!” — Mike Burnick

by Mike Burnick

Baltimore – (TFN): Yesterday, the U.S. Department of Energy reported the biggest BUILD in crude oil supplies in a decade, indicating a fall off in demand. Meanwhile, gasoline stockpiles FELL by 4.5 million barrels.

This says gas consumption continues to rise. So how can you profit from these divergent moves in energy markets? Easier than ever before actually!

Today’s unsettled trading environment is not for the faint of heart, that’s for sure. This is no time to climb out too far on a limb - whether going long or short on the markets. That’s because we’ve seen our fair share of whipsaws lately - sharp moves in BOTH directions - often within days of each other.

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But there’s one investment strategy that’s tailor-made for this kind of market: They’re called “pairs” trades.

In February, I wrote about just such a “hedged” profit opportunity in a pairs-trade between natural gas and crude oil. At the time, I was concerned about a potential correction in crude due to slowing growth. Now a correction may have started.

So rather than make an outright directional bet in energy markets, I saw an opportunity to profit from a spread trade instead. Read on to learn how to make profits from a spread trade in energy.

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Posted by Mike Burnick · Filed Under Oil and Energy 

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