- This long/short hedge trade is based on the outlying possibility of either an oil spike or collapse.
- The trade’s premise is to go long a high-margin oil stock on the ASX200 and go short a low-margin stock.
- Following a move in the underlying fundamentals of these stocks or oil, this pending long/short would be reweighted.
Speculation around oil prices is a central part of the commodity complex. How to take advantage of these price moves without undue risk is the tricky part for non commodity traders.
As discussed in this week’s special report, we are currently facing a binary where oil and related energy futures could either surge or tank depending on inherently unknowable geopolitical and macroeconomic factors ranging from conflict in Iran to misstated reserves in Saudi Arabia to misreported demand in China, not to mention new deepwater discoveries, competition from green and renewable alternatives, technological breakthroughs in extraction or refining and the disleveraging automotive market in the West.
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