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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Umunhum who wrote (24531)	1/12/2005 11:52:47 PM
From: mishedlo	Read Replies (2) \| Respond to of 110194

peak oil play to consider futuresource.com You might have a hrd time getting filled but ITM calls all the way out to 2008 seem rather inexpensive. the strike 34's 4 popints ITM are a mere 7.50 getting filled at that price might be quite problematic but if oil prices are flat from now till 2008 you will make 50% or more (ah the beauty of backwardization) You can buy a basket of 2007 2008 2009 2010 and have a known risk as compared to futures and be spread out over multiple years to boot. I will leave it to you to check other option prices for other years. (click on the ltiile red button for option prices) Mish

To: Umunhum who wrote (24531)	1/13/2005 11:14:54 AM
From: Wyätt Gwyön	Respond to of 110194

Last Summer when you could buy '08,'09, '10 Oil contracts for crude sub $30 it was a no-brainer. Now things are a little more dicey yep, i was buying the 09's and 10's in the 27-28 range, along with long-dated NG contracts around 4.50. however, i sold them all last year. my personal feeling is that the producers are cheaper than even the backwardated crude. Kurt Wulff, e.g., estimates that the E&Ps are discounting $31 crude. i have recently read other figures in the $28-30 range (maybe that was Goldman Sachs?). thus to me, it seems the E&Ps are likely to outperform the commodity in the long run, in a steadily rising bull market. there are other advantages to the equities as well--at least in a taxable acct--one can hold for ultra-low 15% LTCG (a level which i expect to prevail as long as a Republican is in office) on all profits (as opposed to 60% of profits for futures). another tax advantage that i see for the equities, for a long-term holder, is that you don't have to pay taxes on mark-to-market each year as the futures require. so, in a taxable acct at least, using energy as the long-term theme, i feel i should be biased toward the equities, ceteris paribus. assuming Wulff and GS are correct about the implied discount in the E&Ps, then things really aren't equal, but rather favor the E&Ps from a valuation perspective as well. thus, it was easy for me to make the switch to equities. when i try to think of cases where the futures would do better, i think i would need to use quite a bit of leverage. personally, i don't like to do this. so on an unleveraged basis, i don't see how the futures are a better option. as an aside, i think these tax considerations may be one of the reasons for the backwardation, along with the rather poor liquidity of the long-dated contracts. as to what CL will do in 2005, i have no idea. but when you consider the various shut-ins and down capacity (SU, Nigeria, Iraq, SA...) you can get over 1mbpd pretty quickly. so personally, sub-$20 CL sounds rather doubtful to me. OTOH, if this avian flu virus gets legs and tens of millions (or worse) start dying, we could see the global economy come to a standstill, which would be very bearish for CL. i think this type of exogenous shock to the global economy is the biggest near-term threat to CL. i wouldn't want to lose sleep at night worrying about a CL margin call on illiquid contracts (which could become a LOT more illiquid in the event of a price crash) while in the daytime i have to walk around with a face mask. the extra stress probably wouldn't be healthy for the body or the wallet. Right now you can buy XOM Jan '07 leap strike price $60 for $2.1. options are one way to get leverage. another way is to go for smaller-cap issues and just stick with the equities (although if XOM goes to 100 by 07 i can't see many equities beating those calls!). one publication with this kind of focus you might want to look at is Canadianenergyviewpoint.com