Target Achieved on Ultrashort Oil & Gas

by: Trader Mark June 06, 2008 | about stocks: DUG    
Trader Mark

Trader Mark

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On May 21 I opened a position in Ultrashort Oil & Gas [May 21: Oil Looks Toppy to Me - Starting Ultrashort Oil & Gas (DUG)] I wrote:


This type of run simply looks overextended and toppy to me - I believe sooner rather than later (probably within a week or two) we are going to see a sharp reversal in oil to the downside. And it will take the commodities with it. Things have now moved to purely speculative mode - who else is left to buy and who is not on this train? I doubt very many....

I am going to buy Ultrashort Oil & Gas (DUG) as a "trade", not investment. This ETF has destroyed so many people but when it reverses I believe it will be powerful (this does not short oil directly but shorts a whole bunch of exploration companies) And yes, I am still a huge bull for the long term, but nothing straight up (or down). Parabolic moves get me thinking in a contrary nature. We appear to be nearing that stage, and I believe the the risk/reward is in my favor.

I am going to buy here in the $25.90s and see if we can sell it for $30+ within a month (that would be a nice 15%). Heck this ETF was trading there last week, so we might get it even quicker.

Well, we are now here at $30 (15% gain) in exactly 2 weeks; so this is an excellent trade especially considering when I bought it we were in super hype mode and people who bought this instrument the previous few weeks were simply being railroaded. I was fortunate to buy it on the day it bottomed; the only day it traded below $26. Recall I mentioned this was a "trade", not an investment or core holding. I am not going to sell it off here because of the market conditions and propensity for a bit more of a gain (plus it acts as a hedge against my long commodity positions), but I'll begin to bleed off this position over the coming week or two I believe... I'd be thrilled with $31-$32 in that time frame, considering my entry point and how quickly the gains have been achieved.

Disclosure: Long Ultrashort Oil & Gas in fund; no personal position

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This article has 6 comments:

  •  
    Jun 06 09:22 AM
    Is there a way to "short oil directly" (other than the commodity market)?
    Reply | Link to Comment
  •  
    Jun 06 12:30 PM
    Just Me: Buy USO Puts.
    Reply | Link to Comment
  •  
    Jun 06 12:36 PM
    Certainly 25.90 was a well reasoned Buy point..I look at DUG a little differently..it's an insurance position against a commoditiy that can turn on a dime..twice..in the same day. I'll always keep a modest amount of DUG..and increase when oil surges and the likelihood of demand destruction increases...
    For my money..the idea that oil demand is "inelastic" is nonsense. The only things inelastic are air and water.
    Reply | Link to Comment
  •  
    Jun 06 01:19 PM
    Nice call on this one Mark. I'm keeping my eye on the current pricing of DUG (27.45), and may go in if it hits $26.90 again....
    Reply | Link to Comment
  •  
    Jun 06 02:51 PM
    Still holding? Pigs get... you know.
    Reply | Link to Comment
  •  
    Jun 06 06:59 PM
    Hope you 're not stil waiting for 31 or 32
    Reply | Link to Comment
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