Paying too much at the pump? Turn those costs into profits. | Stock Trading Strategies

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Paying too much at the pump? Turn those costs into profits.

Monday, 11 August 2008 10:46 Written by John Jagerson

One of the great things about being an investor is that you can exercise more control over your financial condition than non-investors. This control extends beyond your portfolio and into the rest of your financial life. A great example of what I mean by this is the ability to offset the damage high gas prices are doing to consumer pocketbooks. I was thinking about gas prices this week as I was browsing cars and witnessed the huge drop in prices on low mileage vehicles as consumers try to offload them and their high monthly fuel costs. If you owned one of these vehicles but wanted to offset future gas price increases there are alternatives to dumping it on some used car dealer for pennies on the dollar.

The United State Gasoline Fund (UGA) ETF listed on the AMEX exchange is one tool that can be used to offset the disadvantage some consumers find themselves in right now. UGA replicates the movements of gasoline futures available in the commodity futures market. Because the shares of this ETF represent a smaller increment than a futures contract they could easily be used as a hedge for regular drivers. UGA's price reflects the growth in gas prices in the U.S. in percentage terms. Therefore if gas prices increase by 20%, UGA will increase by approximately 20 points. Similarly, if gas prices look like they are going to fall long term a short position or put option may be a great way to profit as a consumer and an investor. Going long

Prices on this ETF are actually derived from changes in gasoline futures prices which exist as a tool for commercial hedgers and speculators to offset the risks of higher fuel costs. The futures market is often seen as the domain of professionals and because the contract sizes are so large it is difficult for small investors trying to offset the rising costs of their SUV to participate. This ETF brings those benefits to the retail investor. So if you are concerned about gas prices taking off on you again and forcing you to sell your beloved sports car, boat, (insert your vehicle of choice), SUV or classic muscle car keep in mind that you have alternatives and can use the stock market as a way to profit from a rise in gas prices while you pay more at the pump.

Gasoline is a daily topic of conversation and is affecting the way US consumers behave. How are you handling it and does UGA sound like a solution for you? Join us in the forums.

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