This ETF offers an opportunity to buy low while oil prices are down. It also pays a dividend yield of .90%.
S&P Oil & Gas Exploration & Production ETF (XOP)
from The Investment Letter
Below is a price chart for the S&P Oil & Gas Exploration & Production ETF (XOP). Note how the price action of this chart mimics the underlying price of oil; making highs when prices rise and dropping lower as oil prices retreat. In particular, notice just how low prices have dropped in reaction to the recent decline in oil prices. This chart suggests that there might be money to be made in oil—if the speculators are again successful in driving prices back towards $100 a barrel.
If the past is any guide, it won’t be long before those who have been making easy profits in oil futures will be back at it again now that oil prices are back down near $80. While I don’t feel qualified to mess with the options market, I think that a strategic bet on oil by using this ETF might enable us to realize a 30% gain should oil prices once again reverse course and move back up towards $100 a barrel.
I would advise you to exercise some caution if you make such an investment—given the turmoil in the oil market, prices might continue to fall before they start moving higher. If you buy shares in XOP, I would place a stop loss at $51 and sell if it rallies back to $75. As with any short-term investment, these stops will help take a little of the risk and a lot of the emotions out of it.
I don’t think it is possible to know where the exact bottom might be for oil. Back in 2010 the price briefly dropped below $70 before rallying back above $110. We are dealing with a great many unknowns here and the idea is to try and take advantage of a market that may have lost sight of what is really going on in the oil industry. The nice thing about investing in the ETF is that there are no time limits or shrinking premiums like you would find when investing in options. With an ETF we have the luxury to hold the investment for as long as we choose.
For a possible 30% gain, I think it is worth putting a little money to work here.
David C. Jennett, The Investment Letter, P.O. Box 6170, Holliston, MA 01746, 800-542-5018, October 31, 2014