Oil… oil… and more oil! With oil reaching $100 per barrel, this may be a good time to explain how to gain exposure to some of the oil and oil services sector in the market. Without purchasing individual companies or barrels itself, there’s an ETF that can give you a broad exposure to anything and everything oil. Let’s discuss the Oil Services Holder, or the OIH ETF.
What is the OIH: The OIH gives you broad exposure to oil and oil / oil service companies without having to purchase individual companies. Largest holdings in the OIH ETF include Transocean (RIG), Schlumberger (SLB), and Haliburton (HAL).
Why use the OIH: As the price of oil increases, theoretically, profits from oil and oil services increase as well, in turn increasing their stock price and as a result increasing the value of the OIH ETF. Since the OIH trades as equities, all of the tools options traders have are available for use with the OIH.
OIH Options Structure: At the present time with the OIH nearing $200, strike prices are in increments of $5 with $0.05 bid/ask spreads. Liquidity is much less than the larger ETFs such as the QQQQ or SPY but you shouldn’t have issues finding a buyer or seller. At the time of this article, open interest with both calls and puts is about 50-60k.
Oil’s reaching $100 a barrel whether the market likes it or not. The key is whether or not oil will make a retreat once the $100 level is reached. I’ve noticed about a 2:1 put/call open interest signaling a potential downtrend in oil and oil companies as the $100 level approaches. Options traders believe, at least from the open interest ratio, that oil will meet heavy resistance at $100. Barring any political or economical situations, expect oil to make a retreat and as a result the price of the OIH should follow suit.
The OIH is a great way to speculate on how oil and oil service companies will behave as oil reaches record levels without having to purchase options in individual companies. Remember that oil’s liquid gold. Speculate appropriately!