John Jagerson

Profit From Oil Prices With ETF Options

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This article is brought to you by LearningMarkets.com.

Oil prices are rising in the futures market, and oil companies are performing well in the stock exchange. A combination of rising inflation expectations and anticipated economic growth is likely driving the strong performance over the last several weeks. (Get the 12 Best Energy Stocks to Buy Now.)

When a trend like this emerges, investors will seek ways to profit from the opportunity. Many individual investors are unaware of how easy it is to invest directly in oil itself. Traditionally, investors may have used futures to invest in oil, but these require access to a futures account and large margin deposits that may be out of reach for most individual traders.

Alternatively, you could buy oil company stocks, but these investments are exposed to the risk inherent in oil prices, as well as the enterprise risk associated with running a business. (Learn more about investing in commodity stocks.)

The solution to these problems are oil exchange-traded funds (ETFs).

An oil ETF is a great way to retain the convenience of a stock while benefiting from the rise in oil futures. One of these popular ETFs is the United States Oil Fund (USO). (Learn more about investing in ETFs.)

As a fund, USO invest in oil futures and will rise and fall with those prices. This eliminates the risk associated with individual companies without requiring a futures account and margin deposits.

This all sounds good, but why would a trader want to invest in oil in the first place?

3 Reasons to Invest in Oil

1. Inflation

Oil is a way to hedge against rising inflation.

Oil prices suffered from dramatic asset deflation at the end of 2008 and early 2009, but should rise when inflation expectations return. If inflation returns, it will cost more dollars to buy the same amount of oil, which drives USO's price up, creating profits for traders. (Learn more about profiting from inflation.)