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Friday, March 15, 2013

A Unique Business Makes Money No Matter What Happens to Price of Oil

Get Rich and Stay Warm This Winter! by Marc Charles


Get Rich and Stay Warm This Winter!
A Unique Business Makes Money No Matter What Happens to Price of Oil

5:36 AM

Dear Entrepreneur:

The check was made out to me for $12,314! 

I stared at the stupid thing for almost a minute.

This was my second check in this silly business.

Now….don’t call the “authorities” claiming I promised you instant riches with absolutely no risk whatsoever.

Come on…..that’s not honest.

There is MAJOR RISK involved in this market and business.

But there are ways to protect yourself, or even get involved on a small scale, and this should help you reduce the risk.

What’s more…..

There are ways to approach this market and business that’ll give you an “edge”.

One “edge” is to know the market by researching and studying it like a professional, not a weekend gambler or football junkie.

I’ll show you how reduce your risk (and in some cases eliminate it) and make money at the same time.

But first it’s important to realize this market is highly leveraged.

That means you can put up a little money in the form of “margin” and leverage or parlay this amount into big gains.

In fact, the futures market is the highest leveraged market in the world…period!

And don’t kid yourself….

You could lose your initial investment in this market and MORE!

So….study, research and learn from savvy professionals.

The market and business I’m showing you today is heating oil futures.

So let’s get started………

There are two basic groups of people in this market:

·        First Group:
Large professional traders, money managers, mutual funds and institutions (like banks, oil companies and insurance companies)

·        Second Group:
Small speculators, traders, investors and beginners

One challenge in this market is to understand how it moves. 

But there’s a closely guarded money making secret I’ll share with now.

Everyone has access to the same information, statistics, charts, and advice.

But novice traders and investors will trade anything that moves. 

As soon as a stock, currency, commodity, or real estate property moves to a new high, everyone wants to buy it!

What’s more, novice traders jump from one market to another seeking the next “big” deal.
I knew a wildly successful futures trader when I started in this business. He said something I’ll never forget:

“You could lose several fortunes if you don’t focus on a specific market”

In other words, when it comes to trading futures (or anything for that matter) it’s better to focus on the nuances of the market you are trading.

Most new traders do NOT take the time to gain an understanding of each commodity market.
New traders don’t take the time to watch how it moves, trading ranges, cycles, or seasonal changes.

Novice traders don’t have a clue where the “Big money” is in a market (these guys control large sums of cash…think hundreds of million or billions).

And that’s not all……

The heating oil market is super easy to learn!

For example, let’s say you expected heating oil prices to rise during the winter months (which it often does but it’s tricky).

Let’s say that you purchased one March heating oil contract “at the market” (this means at the current prevailing market price) at 2.05.

Your expectations proved correct and the heating oil market moves up to 2.65 over the next few weeks. 

Now you decide to sell one March heating oil futures contract “at the market” and grab in your profit.

A heating oil contract on the NYMEX exchange consists of 42,000 gallons. 

When you opened the trade and bought one heating oil contract it was worth $86,100 (2.05 x 42,000 gallons = $86,100).  

A couple of weeks later when you sold this contract “at the market,” it would hypothetically be worth $111,300. 

In this example you would have made a profit of $25,200 (less commissions and fees).
That’s a lot of money for most people including me.

But for some people $25,000 is chump change!

Some of the traders, money managers and companies who participate in the heating oil futures market trade hundreds of contracts

In this example, if you traded 100 contracts on this same pricing move it would have meant 100 x $25,000 or $2.5 million!

Let’s come back to planet earth…..

In order to trade a heating oil futures contract you’ll need to make a deposit – this is referred to as margin. 

The required margin fluctuates daily - but for heating oil it’s currently around $1,000.


Heating Oil “Cheat” Sheet

Heating oil is a flammable liquid petroleum product normally used to fuel furnaces and boilers.
It’s similar to diesel fuel. Both of them are referred to as distillates. 

Heating oil is also known throughout North America as No. 2 heating oil. The market receives a lot attention every winter.

In finance, a futures contract is a standardized contract, traded on a regulated futures exchange. 

This is the easy part….

A contract is an agreement to buy or sell an underlying commodity at a certain date in the future, at a specific price. 

The future date is called the delivery date or final settlement date. 

The pre-set price is called the futures price. The price of the underlying asset (in this case heating oil) on the delivery date is called the settlement price.

A futures contract gives the holder the obligation to buy or sell. 

This differs from an options contract, which gives the holder the right, but not the obligation

Options are an entirely different market, but they are another way to greatly reduce your risk.
I’ll cover some interesting option opportunities in the weeks ahead.

An important thing about futures contracts…

Both parties of a "futures contract" must fulfill the contract on the settlement date.
The seller delivers the commodity to the buyer. 

Or, if it is a cash-settled future, then the futures trader who sustained a loss transfers cash to the one who made a profit. 

To exit a commitment prior to the settlement date, the holder of a futures position has to offset his position by either selling a long position or buying back a short position, effectively closing out the futures position and its contract obligations. 

The majority of futures contracts are exited before the settlement date. 

Most traders in the heating oil futures market have no intention of taking physical delivery of the commodity.  This is a major point.

The only companies interested in taking a physical delivery of heating oil are those involved the heating oil business.

You can watch heating oil futures prices on all of the major financial news networks, such as Bloomberg, CNBC, Fox Business, BBC, and others. 

You can also track heating oil futures on the top financial websites, such as Google Finance, Bloomberg.com, CBOT.com, FT.com, Yahoo! Finance and others.

How to Make Money with Heating Oil Futures 

One of the best ways to make money by trading heating oil futures is to avoid losing money.
This isn’t a play on words or a tricky trading rule!

In my experience avoiding losses has been a very big deal. You could become very rich over time if learn HOW to avoid losses and let your winning trades run wild.

As I showed you earlier, the heating oil futures market is easy to understand and even easier to trade. 

However, just because winter is around the corner and temperatures are expected to reach historic lows (rumors) this doesn’t mean the price of heating oil futures will rise.

In other words, it takes a little effort and research to understand how the heating oil market works

We need to understand the “ebb and flow” of the market. 

Historical price charts are a great way to do this! 

Here are two places to obtain historical price charts:

In addition, we need to know when the major players are buying or selling heating oil. You can get this information from the Commitments of Traders Reports.

It’ll also helpful to know the cash price (or dock price) for heating oil.

A bunch of heating oil traders make money specializing in the “spread” - or the difference between the futures price and the cash (dock) price.


Okay…let’s get back to avoiding losses…..

In my experience, there are three ways to avoid losses in the heating oil markey (actually any market now that I think of it):

1) Understand the nuances of the heating oil market (Typical trading ranges, where the “big money” is committed, cash prices, historical price charts, etc.)
2) Under trade. Trade less than you can actually afford to lose!  When your positions are profitable systematically remove profits and start over again small.

3) Use stop losses and options. A stop loss is an order below or above where you entered a trade. It enables you to “get out” of a trade if you are wrong. DO NOT CHANGE stop orders. Call or put options can be purchased above or below your entry points.

I’ve covered my “matrix” strategy in previous issues. But it bares repeating.


Here’s a hypothetical trade using my “matrix” strategy:
Buy one December heating oil futures contract “at the market” (the current market price)
The market moves higher. Your position is profitable.
Sell your one December heating oil futures contract “at the market”.
Then buy two December heating oil contracts “at the market”.
The market moves higher. Your position is profitable.
Then sell two December contracts “at the market”
Then buy three December contracts “at the market”.
The market moves higher. Your position is profitable.
Then sell three December contracts “at the market”.
Now buy four December contracts “at the market”.
The market moves higher. Your position is profitable.
Then sell four December contracts “at the market”.
Remove all of your profit from the market. Then start over again small.
NEVER trade more than four contracts (until you become a seasoned trader).
ALWAYS trade a series of four trades – never more, never less.
ALWAYS start over again SMALL.

You see…..

Rookie, novice traders ALWAYS over trade…especially when they make money. They become overwhelmed at the prospect of becoming “rich”. This is when 95% of the mistakes in judgment occur…in my experience.

Another Way to Avoid Risk is by Using Inverse ETFs

I really like inverse ETFs! They enable you to trade highly leveraged and volatile markets without a lot of risk.

In fact, ETFS are similar to commodity options in that your risk is limited to the initial investment….that’s it.

You can also make money with ETFs (and options) of the price of commodity goes down, stays constant or even goes up a little.

I’ll cover unique ETF and option strategies in future issues.

But for now….it’s important to know you can make a living in this business. 

There has never been a better time to learn this incredible market and business 
opportunity.

In no time flat, you’ll be warming up with your own heating oil profits!

Trade safe….and always look for ways to reduce risk and losses.

Have fun and play nice.

Regards,


Marc Charles

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