Careful analysis and an open-minded observation of the situation reveals a possibility of making huge returns from the volatilies.
Economies and investors who invested based on a $140 oil price lost heavily due to the 70% dip in oil prices.
However, careful analysis and an open-minded observation of the situation reveals a possibility of making huge returns from the volatilies.
In the past week, international oil price has seen a 9 percent increase in the past week, but analysts predict another downward plummetion in the coming weeks.
How can investors benefit?
The relative stability of oil prices in the last week and probably the next week presents an opportunity to make a million dollars as long as crude prices do not fall dramatically in the next few months.
CNBC Thursday told a story of one trader who sold 55,000 MRO April 5-strike Puts for 28 cents each for a total of $1.5 million in credit. This is a bet that Marathon Oil shares stay above $4.72 by April expiration, a threshold 36 percent lower than where the stock closed Thursday. If MRO manages to stay above $5, the entirety of that $1.5 million is retained by the trader.
Analysing the situation, Dan Nathan of RiskReversal.com, says astute investors can take advantage of the fears of investors who are worried about oil prices falling further.
"One of the reasons this trader is probably looking to sell out-of-the-money puts [is that] the price of options, they're very elevated," Nathan said Thursday on CNBC's "Fast Money." "They probably have a long way to go if oil starts to settle."
Nathan also noted that Marathon Oil's stock has fallen steeply from its all-time high, trading near its all-time low of $6.52 that it hit in February.
"It's a bit of a mess," Nathan said. "If you think oil's going to settle and you think this balance sheet's OK," Marathon Oil is the place to sell put options.
Time.com enumerates 3 sure ways of making money from falling oil prices:
Ease off emerging markets. Russia and Iran need oil at or above $100 a barrel to avoid major budget deficits, says Matthew Berler, CEO of investment firm Osterweis. The Saudis have been playing hardball by refusing to cut production, and if they continue, “other parts of the emerging markets could get hit,” says Tom Forester, head of Forester Capital Management. Good reason to cut emerging markets to 5% of your portfolio.
Bet on shipping. With gas expected to stay 30¢ a gallon below 2014 highs, “the transportation industry is getting a big windfall,” says economist Edward Yardeni. Railroad stocks have been on a tear for years. So lean toward cheaper truckers and airlines, which benefit from sinking prices and rising spending. Two-thirds of SPDR S&P Transportation ETF is in those industries.
Save on a gas sipper. “When gas prices go down, you see an immediate impact on vehicle choice,” says John Krafcik, president of pricing siteTrueCar. Automakers have already begun discounting super-fuel-efficient cars—the Ford Focus Electric recently fell $6,000—and Krafcik expects to soon see “fantastic deals” on gas-engine midsize and compact sedans, which can get 30-plus mpg. Everyone else may be buying big—the SUV is back!—but a contrarian play may pay off in the long haul.