Oil Prices and the stock market

[gregintenn]

Why does the stock market, Dow Jones Industrial Average in particular, drop in value when oil prices fall? I would think cheaper fuel costs would be a boon to companies who need it to produce a product.

[ArchietheDragon]

the cost of oil is a tiny fraction of most companies operating costs.   large reductions in the cost make almost no impact to their margin.  But the fall in value of oil is usually a canary in the coal mine of an upcoming slowing of the global economy.   Slowing economy means less revenue which has a much larger impact on a large company who needs to grow top line revenue every year just to stay competitive. 

[Deleted]

Simple Answer:

Oil prices drop: The USD strengthens.

[gregintenn]

Feb 2, 2016 15:01:46 GMT -5 @di said:

Simple Answer:

Oil prices drop: The USD strengthens.

There's what I was missing! Thanks.

It does bring up another question, however....how does a fella make money in this environment?

[mroped]

Try working Greg!
See where that gets you!

[gregintenn]

Feb 2, 2016 15:27:08 GMT -5 mroped said:

Try working Greg!
See where that gets you!

So far it's worked well. In fact, it has gotten me to the point of having a big pile of extra money I don't know what to do with.

 Thank you for very useful input.

[ModE98]

Might be wise to sit on CASH until oil stops dropping and the market stabilizes.  Who really knows how low she may go?  Too freaky right now.  Stay cool.

[Ombud]

If you're with one of the large discount brokerage firms, try putting in a limit order for what you feel is a valid entry point on an index:

1. Determine what your long term (core) VS short term (trading) ratio is based on your personal tolerance for risk

2. Long term (for me) = set & forget, reinvest dividends / interest / cap gains
♤ SPY / VOO / SCHB - 5% below current value
-- SPY & VOO indexes 500 holdings
-- SCHB has 2500 holdings
♡ Tax free muni bond ETF

3. Short term (for me) = daily monitoring, take dividends / interest / cap gains in cash
◇ Dividend aristocrats

4. Add in:
♧ Options - set alerts on underlying company

[gregintenn]

Feb 4, 2016 12:29:47 GMT -5 Ombud said:

If you're with one of the large discount brokerage firms, try putting in a limit order for what you feel is a valid entry point on an index:

1. Determine what your long term (core) VS short term (trading) ratio is based on your personal tolerance for risk

2. Long term (for me) = set & forget, reinvest dividends / interest / cap gains
♤ SPY / VOO / SCHB - 5% below current value
-- SPY & VOO indexes 500 holdings
-- SCHB has 2500 holdings
♡ Tax free muni bond ETF

3. Short term (for me) = daily monitoring, take dividends / interest / cap gains in cash
◇ Dividend aristocrats

4. Add in:
♧ Options - set alerts on underlying company

Thank you for your input. I'm normally in the long term criteria you addressed in #2. I monthly buy mutual funds, reinvest dividends, hold and forget.

#4 is waaaaaaaay over my head.

[Ombud]

Watch costs on mutual funds

So now that you've got a base, try wading into highly rated dividend aristocrats by paper trading first but no more than you're willing to risk. I say paper trading first so you can really understand your risk tolerance. It's one thing to think it's your risk tolerance and another to test it out

[gregintenn]

Thanks again. I'll have to learn about them before putting  money there.

That has  been a steadfast principle that has so far served me well. Don't sign anything, or invest in anything until I understand it well enough I can easily explain it to someone else.

[Deleted]

gregintenn

Actually, Options can be used in a very basic fashion as an analog for equities; In Lieu of actually buying Equities.

Not only is this typically cheaper (thus less direct principal at risk); but Options are levered.

1 Options Contract = 100 Shares of the given Equity.

So for example, if XYZ corp is trading at $100 per share; then 100 shares would cost $10,000.

Yet the $100 Strike CALL for XYZ may at that point only be trading for $10 per contract; thus it would only cost you $1,000 to control 100 shares of XYZ corp.

Options Trade like stocks & can experience the same type of rapid rise or drop.

As an Analog for Equities; if you PURCHASED a CALL Contract, then if the stock represented goes up in value, the values of the CALL contract. On the other side if you PURCHASE a PUT Contract, then if the stock represented falls in value, the value of the PUT Contract increases. 

I am nearly certain that Ombud tossed in the idea about Options from the point that seeking out ALPHA in any & all of it's forms is a KEY Foundation in this type of environment.

[gregintenn]

Feb 4, 2016 17:46:45 GMT -5 @di said:

gregintenn

Actually, Options can be used in a very basic fashion as an analog for equities; In Lieu of actually buying Equities.

Not only is this typically cheaper (thus less direct principal at risk); but Options are levered.

1 Options Contract = 100 Shares of the given Equity.

So for example, if XYZ corp is trading at $100 per share; then 100 shares would cost $10,000.

Yet the $100 Strike CALL for XYZ may at that point only be trading for $10 per contract; thus it would only cost you $1,000 to control 100 shares of XYZ corp.

Options Trade like stocks & can experience the same type of rapid rise or drop.

As an Analog for Equities; if you PURCHASED a CALL Contract, then if the stock represented goes up in value, the values of the CALL contract. On the other side if you PURCHASE a PUT Contract, then if the stock represented falls in value, the value of the PUT Contract increases. 

I am nearly certain that Ombud tossed in the idea about Options from the point that seeking out ALPHA in any & all of it's forms is a KEY Foundation in this type of environment.

Thank you for taking the time to explain this. You wouldn't be able to post a link or two where I could read more about options would you?

[Deleted]

gregintenn

ymam.proboards.com/thread/39911/options-basics-important-information-discussion

There is a link to a thread, that was started some time ago, here at IBB in regards to Options.

Ombud dabbles here & there in Options & I tend to make my book nearly all in the Options markets.

[Ombud]

Feb 4, 2016 18:09:46 GMT -5 @di said:

gregintenn

ymam.proboards.com/thread/39911/options-basics-important-information-discussion

There is a link to a thread, that was started some time ago, here at IBB in regards to Options.

Ombud dabbles here & there in Options & I tend to make my book nearly all in the Options markets.

Small time dabbler here ... no more than 5% of portfolio at risk. But I've only lost once

If you go to the Options Industry Council website, you can request a free 'AN INVESTORS GUIDE TO TRADING OPTIONS' booklet (64 pages)

[gregintenn]

Thank you both very much.

[Ombud]

Additional thought, @di put up a few great equations that helps evaluate whether the trade makes sense or not on options basic thread (pg7).

[gregintenn]

Thanks again, DI and Ombud. I think I've looked into this before in years past. It still seems like a shady card game at an Indian casino to me. Good luck to you two with it, however.

[Value Buy]

The drillers are partying like it's 1859 all over again!
Yes, 1859.

www.msn.com/en-us/money/markets/oil-and-gas-drillers-in-the-us-ready-to-party-like-it%E2%80%99s-1859/ar-BBqfpN3