Of all the commodities in which people invest, oil seems like the surest thing. The world needs oil for energy and a variety of other uses, and despite dropping prices, suppliers and producers remain profitable. Below are some ways to play the market and invest in oil.
Futures contracts were the original oil investment vehicle. However, this high-risk option is best for experienced investors. It involves speculation on commodity pricing, and the investor trades the right to sell or buy at a certain point in the future. Futures contracts allow investors to trade in oil without having to store it, ship it or process it.
Stocks are easy for investors to understand, and they are one of the simplest and best ways to invest in oil. As most people know, stocks represent partial ownership in the oil company. Many firms are significantly affected by fluctuations in oil pricing; buying shares of these companies can give an investor indirect exposure to oil.
ETFs or exchange traded funds are a good way for an investor to gain exposure to oil without having to buy directly from the company. Rather, the investor buys into the ETF, which tracks futures contracts or oil company indices. Some ETFs track crude oil futures, and others track companies involved in production and exploration.
A stock option is a contract that gives the holder the right, not the obligation, to sell or buy a certain number of shares of stock for a set price and a set time. A call option gives the investor the right to buy, while a put option gives them the right to sell.
An REIT or real estate investment trust gives an investor a way to get into the market via real estate holdings. Investors have traditionally preferred REITs because of their simplicity. They can be owned inside a retirement account, they’re easy to sell, and they have fewer tax consequences.
These are some of the best ways to invest in oil without getting directly involved with production. Those interested in investing in gas or oil can see more information online.