It is astonishing how broad the field of investment is. You can, of course, trade equities, bonds, and commodities. But you can also trade volatility, credit spread, relative performance, options, indexes, swaps, arbitrage, etc, etc. And on top of that there multiple styles that apply to each of these ranging for the usual TA and FA to esoteric ones.
Anyways, futures tell you where the market expects the prices to be in the future. There is a reciprocal relationship between the futures and the spot. So in general the peaks and troughs of one correspond with the other. BUT term structure also tells you about how likely in percentage terms, are the future moves. Or rather what the market has priced in. So if you know better, then you can exploit that.
Since I don't know zip about oil, I try to wait for very lopsided moves before I decide. The most worrying thing about oil is that it is not moving higher. With the amount of logic and chest beating that its proponents have done, it should be much higher than it is. If you look at oil futures a few years out, they are in the 60s and 70s. Why is that? This is worrying to me. You can put in 5% or 10% and buy yourself a ton of 2025 oil contracts. You will have more than doubled (more like 3.5x) your money if oil prices just stay where they are. You will leave a fortune behind buying those futures if the price settles ~120 by the contract expiry.
So yes, oil looks good and I cannot find any logic against it. But I am not willing to commit to it until I see that odds tilt in my ignorant favor. This would be different if I was an oil specialist.
PS this doesn't apply much to oil stocks b/c there are a lot more variables there than the oil price. |
