Profit from Oil Futures
On July 3rd, 2008 I entered into a long position on crude oil futures. At the time, the future for December 2012 sweet, light crude oil was priced at $141.25. A few days later, the price of oil began to fall. For the past five months, I've been holding on to this position, believing that oil is definitely worth much more than $141.25 per barrel. The energy in a single barrel of oil is worth thousands of hours of human labor.
Today, on December 4th, 2008, I exited the long position, "selling" at $77.00. The difference in the two prices, $64.25, is my loss... per barrel. A single oil futures contract is 1,000 barrels. So, the monetary loss was significant for a person like myself, a public school teacher, with no additional source of revenue.
So, a mistake, and a costly one. I would hope to say that I've learned an extremely valuable lesson from this experience, these past tense five months. And a few things I certainly did learn, some of which I can bring to mind, and others that are in my mind but difficult to recall on demand. I certainly learned that buying high and selling low isn't a good plan for growing one's nest egg, that's for sure.
More seriously, I learned that my understanding of peak oil was not complete. Specifically, my understanding of how energy and money interact with each other in the global economic system, that is very incomplete. And, I now have a greatly renewed desire to understand the inner-relationships between these two.
I've also learned some personal things. For example, when investing, I have a strong tendency to buy-and-hold. That did not work well in this case, and I think it probably does not work well in many cases. I had four good opportunities to exit earlier, and to reduce my loss. Each time, the price of oil had climbed for a week or two, but rather than selling, I hoped that things would just go up and up and up. Of course, they did not.
On the day of the U.S. Presidential election, my contract had risen from the $80 mark to above the $90 mark. Being an optimist, or something, I hoped it would keep going up, now that the election had been decided. To the contrary, it has went down ever since. This would have probably happened no matter who was actually elected, and being a never-ever trader, I didn't have the history to know what happened on election days. Perhaps that rise in prices is typical.
In any event, it illustrates the difficulty I have in getting out when I'm already in the hole, and yet the price is going up. I'm sure there have been studies on this because it would be a behavior that is either common to animals or humans or people of our culture or at least fairly prevalent. I'm sure the study of gamblers probably has revealed some interesting analysis on this.
The good news about this is that now my uncertainty about my personal finances is much less. I'm less concerned about if oil goes down now, and in fact, will probably feel good that I exited when I did. If it goes up, which it is likely to do, then I'll recognize that I probably would not have sold anyway, and would have just ended up losing more. The other good news is that our house, cars, bills, trips, etc. are all fully paid off, and the money that was lost was savings. That is much preferable to having run up the credit cards, or taking a home equity loan or whatever to keep feeding the fire of my ignorance. And yes, I admit, there are definitely things that I do not know. I guess that is a good lesson as well.
Today, on December 4th, 2008, I exited the long position, "selling" at $77.00. The difference in the two prices, $64.25, is my loss... per barrel. A single oil futures contract is 1,000 barrels. So, the monetary loss was significant for a person like myself, a public school teacher, with no additional source of revenue.
So, a mistake, and a costly one. I would hope to say that I've learned an extremely valuable lesson from this experience, these past tense five months. And a few things I certainly did learn, some of which I can bring to mind, and others that are in my mind but difficult to recall on demand. I certainly learned that buying high and selling low isn't a good plan for growing one's nest egg, that's for sure.
More seriously, I learned that my understanding of peak oil was not complete. Specifically, my understanding of how energy and money interact with each other in the global economic system, that is very incomplete. And, I now have a greatly renewed desire to understand the inner-relationships between these two.
I've also learned some personal things. For example, when investing, I have a strong tendency to buy-and-hold. That did not work well in this case, and I think it probably does not work well in many cases. I had four good opportunities to exit earlier, and to reduce my loss. Each time, the price of oil had climbed for a week or two, but rather than selling, I hoped that things would just go up and up and up. Of course, they did not.
On the day of the U.S. Presidential election, my contract had risen from the $80 mark to above the $90 mark. Being an optimist, or something, I hoped it would keep going up, now that the election had been decided. To the contrary, it has went down ever since. This would have probably happened no matter who was actually elected, and being a never-ever trader, I didn't have the history to know what happened on election days. Perhaps that rise in prices is typical.
In any event, it illustrates the difficulty I have in getting out when I'm already in the hole, and yet the price is going up. I'm sure there have been studies on this because it would be a behavior that is either common to animals or humans or people of our culture or at least fairly prevalent. I'm sure the study of gamblers probably has revealed some interesting analysis on this.
The good news about this is that now my uncertainty about my personal finances is much less. I'm less concerned about if oil goes down now, and in fact, will probably feel good that I exited when I did. If it goes up, which it is likely to do, then I'll recognize that I probably would not have sold anyway, and would have just ended up losing more. The other good news is that our house, cars, bills, trips, etc. are all fully paid off, and the money that was lost was savings. That is much preferable to having run up the credit cards, or taking a home equity loan or whatever to keep feeding the fire of my ignorance. And yes, I admit, there are definitely things that I do not know. I guess that is a good lesson as well.