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starbucks4ever (99.53)

First oil short

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7

September 13, 2010 – Comments (17)

It was with some trepidation that I opened my first real-life short position last Friday. Holding a short position is more difficult than holding a long position, if only in terms of expenditure of your precious nervous cells, which don't regenerate. I would never even consider being short without a hedge. Fortunately, an out-of-the-money call was available and the price was reasonable.

And so my first real-life short position was initiated.

I am very excited about this investment. XOM at $61.14 is a very steady, solid, and reliable short, which has all the same qualities I look for in my real-life long positions. It's not going to make me rich overnight, but I expect it to slide to zero in a very gradual and steady manner.

I put the proceeds into SDY (75%) and GE (25%). 

It will be a slow and exciting ride to the bottom, where zero is the limit. 

More oil shorts are on the way, once Mr. Market gives me a confirmation that my timing is right and the strategy is working. I won't be acting in any hurry. This secular bear market in oil will last many years, and will provide more than enough money for all of us.   

So let the fun begin! 

 

 

 

 

 

 

17 Comments – Post Your Own

#1) On September 13, 2010 at 5:36 PM, Gingerbreadman55 (32.94) wrote:

oil... short?

I have a hard time shorting something that the entire world needs most after food and water in order to function.

If anything the whole Gulf of Mexico ordeal should really just show off how powerful and resilient those big oil companies really are. I expect profits to continue... why would you expect otherwise?

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#2) On September 13, 2010 at 5:43 PM, vriguy (80.61) wrote:

I agree with Ginger. But even if you are bearish on oil why not short a sector ETF?  XOM is undervalued relative to the rest of the industry by almost any measure that you care to look at.

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#3) On September 13, 2010 at 6:00 PM, RonChapmanJr (98.51) wrote:

Zloj - Thoughts on peak oil?

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#4) On September 13, 2010 at 6:17 PM, starbucks4ever (99.53) wrote:

vriguy,

These sector ETFs are often illiquid, and they are focused on the price of oil, which should do better than oil stocks. Oil will not go down to zero, but most oil companies will. 

RonChapmanJr,

I place peak oil is in the one category with the Y2K bug. 

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#5) On September 13, 2010 at 6:23 PM, chk999 (99.98) wrote:

You are braver than I am. I've been thinking about taking a long position in XOM.

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#6) On September 13, 2010 at 6:36 PM, Valyooo (99.82) wrote:

Why do you think the biggest company in the world is going to zero? I think it will stay about the same. I underperformed on caps because I expect spy to climb and xom to stay flat, but can you please explain your thoughts?

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#7) On September 13, 2010 at 6:55 PM, NOTvuffett (< 20) wrote:

I can't really see why oil is over $50 currently- demand is weak and inventories are really high.  Having said that, I think XOM is just about the last thing I would short.  I would rather go long on it, and if it goes down significantly back up the bus.  The world is not going to stop using oil anytime soon.  Decent dividend, very capable and conservative management.

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#8) On September 13, 2010 at 7:02 PM, Harold71 (29.05) wrote:

Wowza. 

I always thought Y2K was a great scam for computer programmers, people selling survival crap, etc.  Peak oil is an inevitable fact of life.  You take it out faster than it's made...hmm, yes indeed someday production will decline.

I would, however, sooner short XOM than oil prices.  Further,  I would short gold before oil at these levels.  And yet I would do none of these things when the dollar value is virtually certain to continue declining.

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#9) On September 13, 2010 at 8:19 PM, MegaEurope (22.68) wrote:

zloj (99.63) wrote:

These sector ETFs are often illiquid, and they are focused on the price of oil, which should do better than oil stocks. Oil will not go down to zero, but most oil companies will. 

First of all, there is a difference between sector ETFs (baskets of individual stocks) and commodity ETNs (baskets of commodity futures).  Second, assuming this position is in the thousands and not the millions, energy ETFs and ETNs have plenty of liquidity for your needs.

Good luck. I think you will need it.

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#10) On September 13, 2010 at 8:39 PM, MyunderratedLife (81.66) wrote:

XOM will exist in some capacity or another long after your bones have turned to dust.

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#11) On September 13, 2010 at 9:08 PM, Robuh (24.64) wrote:

I put the proceeds into SDY (75%) and GE (25%).

That's funny because SDY has a 1.7% holding in XOM. Pretty much  irrelevant but sort of ironic.

I was actually looking to buy XOM but bought some TOT instead. This is definitely a gutsy call. If you call this right it will rank among the top calls I've ever seen.

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#12) On September 13, 2010 at 9:10 PM, alberta911 (76.63) wrote:

zero is not your limit

steady, solid, and reliable short?

From someone who has shorted energy more than most perhaps you never considered the following

1.   huricane season

2.  EPA storage change

3.   Natural gas from shale rock health concerns happening right now ...during your mid term elections

 

 More oil shorts are on the way...BS Seasonality does not support your theory

 

too bad as once this bullet hits the chamber ...you will never want to short again

 

Oil will not go down to zero, but most oil companies will....no you my friend will go to zero

 

Coming from someone who loves to short energy and does not believe in peak oil

 

 

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#13) On September 13, 2010 at 9:57 PM, RonChapmanJr (98.51) wrote:

In honor of this post, I just put up a green thumb on XOM.

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#14) On September 13, 2010 at 10:09 PM, starbucks4ever (99.53) wrote:

MegaEurope,

I mean the volatility potential. It's harder to manipulate a stock like XOM. A basket of oil stocks is a different matter. Do you have any good ETF in mind? I mean, one with high management fees and holding some toxic oil stocks?

guanwo,

If you decided to spam in my blog, at least have the courtesy to give me a rec! Since you didn't, I'll have your stupid handbag ad deleted.

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#15) On September 13, 2010 at 11:32 PM, MegaEurope (22.68) wrote:

My recommendation would be to take 1/2 or 1/3rd of the capital you were going to use and short DIG or ERX.  Your portfolio volatility would be roughly the same since you would have less capital at risk.  And most importantly, you would capture the volatility decay which can easily be on the order of 20-30% per year for an ultra ETF.

If you really want high liquidity, XLE is a $6.4B fund.  ETFs of that size generally rarely deviate far from NAV.

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#16) On September 13, 2010 at 11:40 PM, MegaEurope (22.68) wrote:

And if you think XOM is toxic, then yes, of course every energy ETF holds toxic oil stocks.

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#17) On September 14, 2010 at 12:13 AM, starbucks4ever (99.53) wrote:

XLE looks good at the first glance. Will look at it more carefully. 

Thanks, MegaEurope!

 

 

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