Postby sundance » Sun Jan 10, 2021 7:59 pm

I have some exposure to the benefits of a potential increase in oil prices through ownership of Callon, Diamondback, etal but am wondering if it might be a good bet to buy a long dated (Jan 2022?) Call on one of the following oil price ETFs: DBO - USL - UCO - USO - OIL. Any thoughts would be welcome.
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Postby dan_s » Mon Jan 11, 2021 9:44 am

Obviously, if the price of oil goes up buying a long call should be profitable. Just keep in mind that there is a "time premium" in options. When you buy a Call or a Put, the time premium erodes against you. I've made more money selling options than buying them. Selling a Put option is also a bet on oil going higher, but the time premium erodes in your favor.

I think there is more upside in the currently under-valued upstream companies stock. For example, if WTI goes from $50 to $65 you will make a 30% profit on the commodity. If WTI goes up 30% CPE and FANG are likely to double. Plus, they will probably go higher if oil just settles in at $50/bbl.
Dan Steffens
Energy Prospectus Group
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Postby mkarpoff » Mon Jan 11, 2021 3:26 pm

Calls are great if your timing is good. For instance, I bought the Devon Jan 22 12.74 calls a couple of months ago. The calls cost me $5400, and are now worth about $14,500; way better percentage than my Devon shares, which I bought earlier and are up 81%. I should be so lucky all the time.
I like the idea of occasionally pairing the common with some LEAPS if the LEAPS are not too expensive. Obviously, you have to pick your spots. More bang for the buck, and it more convenient than going to Las Vegas.
As an aside, the ABEV Jan 23 5 calls seem very cheap given they don't mature until two years from now. I don't expect to hold them that long, but the beverage companies have been doing well, and Ambev is a laggard. Roll those bones.
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