Trade Crude Oil

Whether you are a Bull or a Bear, there are some powerful Oil ETF available in the Oil and Oil Service Sectors. Stick to the most heavily traded Sector ETF, because these are the ones that are going to have the most Institutional support.

Here are some great suggestions:

Oil Service ETF

One of my core Oil Service ETF is the Oil Service HOLDRS, Symbol: (OIH). This ETF is highly liquid and will give you exposure to the largest oil service players. All the big names are in this ETF: Transocean, Baker Hughes, Halliburton, etc. OIH is a trading vehicle utilized by a multitude of professional traders. It currently trades over five million shares a day. I am strong on ETFs because we can trade them in many different ways. You can buy it, short it, or trade options against it.

Oil ETF

There are a number of Oil ETFs out there for every slice of the oil business. I’m going to share two with you. One of the best ways to trade crude oil is to buy futures. Now for many investors this carries a level of risk they are not comfortable with depending on their level of experience. A safer option is to buy the United States Oil Fund, Symbol: (USO). This ETF is designed to deliver returns that correspond to movements in WTI Crude prices.

United States Oil Fund uses the futures market to deliver these returns. An issue here is that futures contracts are “rolled” from one expiration period to another and each one of these rolls cost money both in transactions costs and what’s known as negative roll return. Negative roll return comes about when the new front month contract is trading at premium to the expiring contract (or “old” front month contract).

Roll returns can however work in your favor when the new front month is trading at a cheaper price than the “old” front month. TIP: So if you’re going to trade USO or any other commodity ETF, try to exit your trade before the next roll date if you see the new front month trading at a premium to the “old” front month.

Energy Select SPDR, Symbol: (XLE) is one of the largest traded equity Energy ETF and provides you with broad energy exposure — everything from Shlumberger to Exxon. It contains natural gas players, oil exploration and production companies as well as oil service players. XLE is right for you if you are looking for one vehicle to trade the entire energy complex.

So what are the multiple advantages to going the ETF route instead of the individual stock route??

For one, you can’t beat the diversification: In one vehicle you can go long, short or trade options against dozens of companies. You totally avoid the “Enron” and “Lehman” risk associated with individual stock ownership. Instead you maintain exposure to a sector ETF that has delivered stunning returns for both bulls and bears.

Author: Jonathan Devine
Article Source: EzineArticles.com
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