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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Wyätt Gwyön who wrote (83685)	4/28/2007 11:56:07 AM
From: Umunhum	Read Replies (2) \| Respond to of 206329

Let me premise my post by saying that I think that peak oil is right now. I’m with Pickens, Deffeyes, Bakhtiari, and Simmons. I think oil prices are going to spike to over $80 this Summer and Saudi Arabia is going to say that they could provide us with more oil but we don’t have the refining capabilities to refine it again. worldoil.com I’ve been buying as far out as I can on the future’s curve. I did about the worst thing you can do by buying on August 1st 2006 a Dec 2012 contract. futuresource.com The worst somebody could have possibly done was buy at $72 and get a margin call at $59. That would require $4,000 for the contract and $13,000 worth of draw down for a total of $17,000 per contract to avoid being sold out. i didn't even try to pick the worst-case scenario--i just chose the June contract because the chart was handy--i was not "data mining" in the sense of looking over huge swaths of historical data to find the worst case scenario (although in fact that is what i would do myself if i wanted to "stress test" my own leverage). buying the June 08 last August was not buying the front month. I still believe you are overstating the downside: futuresource.com It looks like the top was around $79 in early August with a bottom around $57 in January. That would give us 22k worth of draw down and the 4k in margin requirements for a total of 26k to protect a position from peak to trough. Regardless, I believe going as far out on the future curve as you can is the best strategy. Once people realize peak oil is a reality, the future strip will go into contango or maybe even a slight forwardization. Not only that but the further out you go, the less volatile the contracts are minimizing the margin call risk. I think it is a stretch to make this statement: my point in the above exercise is to show why i prefer COS to futures. COS itself is leveraged to the price of crude, so even an unleveraged COS holder could end up doing better than a heavily leveraged futures buyer. I guess just about anything is possible but you are assuming that someone is going to make no return on the $83,000 of gain from $67 - $150 and at the same time keep all of their initial 25k tied up. I know that I am leveraged past your comfort level. We seem to have these talks about every year. Right now I’m controlling 43 contracts with about 573k worth of equity in my commodity account. (43 * 4k = 172k) I’ve got about 400k of surplus funds or about $9 worth of draw down protection. I’ve got another $6 worth of protection from 250k in a cash account that could easily be transferred over. If push came to shove, I could get another $20 worth of draw down by transferring a million from my Ameritrade account but that would further increase my margin there. So overall, I am in a position to defend my contracts all the way down to the low 30’s – an event that I think is as likely as a comet destroying my condo. My average contract price is about $69 – I own Dec 2008s, 2009s, 2010s, 2011s, 2012s, 2013s, 2014s and 2015s. I believe peak oil is here and don’t mind having a little “skin” in the game. If I’m right, my commodity account will go from 573k to 1906k at $100 oil ( 573k + (43 contracts * $31)) at $150 oil my account would go from 573k to 4056k (573k + (43 * 81). During this time frame I will probably be playing transfer games with my excess cash getting an even higher return. (remember - you only have to keep $4 of equity per contract - the rest can be deployed in an interest bearing account) I have a rather large margin interest expense carry forward balance that I should work off someday. If I could buy options on oil instead of future contracts I would do it. Unfortunately the option contracts on the far out months simply don’t exist or never trade. If I could buy a Dec 2015 strike 65 option contract for $10, I would buy at least 100 of them. Your strategy is far more conservative than mine. If I were going to go meditate in a cave for the next 5 years, I would probably put all my money in the Canadian oil sand companies and forget about it. The reality is that I have spent and continue to spend an enormous amount of time studying this issue. Many people are going to become incredibly rich by investing in oil over the next few years. I intend to be one of them.