The official hedge play will be puts on the XLE. I am also profiling several additional hedges for those that feel a little more aggressive. They are NOT official positions. The initial target for a crude correction would be a drop to $64 with a secondary target at $60. This is a short-term play of 4-6 weeks with expectations for crude to rebound by the middle of September at the latest. Sept 10th is the peak of the hurricane season and once past the 10th crude prices should move up sharply to accommodate the Q4 demand and OPEC's unwillingness to increase production.
XLE - Oil Drop Hedge Put
Energy Select Sector SPDR Fund (the Fund) seeks to replicate the total return of the Energy Select Sector of the S&P 500 Index. The Fund utilizes a passive or indexing investment approach and attempts to approximate the investment performance of the Energy Select Sector Index, by investing in a portfolio of stocks that seek to replicate the Energy Select Sector Index. The Energy Select Sector Index includes companies from oil, gas and consumable fuels, and energy equipment and services industries. Energy companies in the Energy Select Sector Index develop and produce crude oil and natural gas, and provide drilling and other energy resources production and distribution-related services.
Breakdown trigger: $72
Buy Dec $70 Put XBT-XR
Initial profit target: XLE $65, secondary target XLE $60
OIH - Oil Service Holders
The Oil Service HOLDRS Trust issues depositary receipts called Oil Service HOLDRS, representing an undivided beneficial ownership in the common stock of a group of specified companies that, among other things, provide drilling, well-site management, and related products and services for the oil service industry. The Bank of New York is the trustee. The Oil Service HOLDRS Trust was formed under a depositary trust agreement dated February 6, 2001. The 18 issuers of the underlying securities represented by Oil Service HOLDRS, as of August 1, 2005, were Baker Hughes Incorporated, BJ Services Company, Cooper Cameron Corporation, Diamond Offshore Drilling, Inc., ENSCO International Incorporated, Grant Prideco, Inc., GlobalSantaFe Corp., Halliburton Company, Hanover Compressor Company, Nabors Industries Ltd, Noble Corporation, National Oilwell Varco Inc., Rowan Companies, Inc., Transocean Inc., Smith International, Inc., Schlumberger Limited, Tidewater Inc. and Weatherford International Ltd.
Breakdown trigger: $173
Buy Oct $170 Put OIH-VZ
Initial profit target: $150, Secondary target $140
XOI - Amex Oil Index
The Amex Oil Index is a price-weighted index designed to measure the performance of the oil industry through changes in the price of a cross section of widely held corporations involved in the exploration, production and development of petroleum. The XOI Index was established with a benchmark value of 125.00 on August 27th, 1984.
Breakdown trigger 1460
Buy Oct 1360 Put XCY-VL
Initial profit target: 1300, secondary target 1250
DUG - UltraShort Oil & Gas ProShares
The UltraShort Oil & Gas ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones U.S. Oil & Gas Index. (DJUSEN)
Buying DUG is the same thing as shorting the index only DUG has a 200% compounding factor.
Breakout trigger: $45
Buy DUG, target $52