We might as well get accustomed to talking about oil on a regular basis, as if we haven’t already, right? There are so many things that oil effects right now that change has become inevitable to find cheaper, alternative fuels. That’s a good thing as far as trading oil goes although I believe the change should have happened 15-20 years ago.

Ten years ago the hype was fuel-cell battery stocks and look what they have done. Wall Street was banking on names like Ballard Power (BLDP, $4.46, down $0.09) and Fuel Cell Energy (FCEL, $7.62, down $0.27) to carry us to a new wave of energy investments. In March 2000, Ballard was trading at $130 a share and Fuel Cell Energy was going for nearly $50 the same year.

Of course, 10 years later there are now dozens more companies that do the same thing that Ballard and Fuel Cell have been involved in for years. The point being is that oil was around back then, still is today, and will be in the future no matter what technology brings.

As far as today’s oil prices, oil set a record high of $147.27 on July 11. Yesterday, oil jumped above $115 per barrel as Tropical Storm Fay approached Florida. The storm is not expected to disrupt operations in the Gulf of Mexico but nonetheless, the market was nervous yesterday. Oil finished the session at $112.87 a barrel.

The recent retreat has given the market a boost over the past month but we didn’t start the week off on a good note. Oil has been a problem for the market in the past and it seems like the latest rallies are stalling because of the financial companies. Even if you’re not the gambling type, a small bet on higher oil prices could actually lower the risk of your portfolio, since the price of oil has lately tended to move inversely to stocks and bonds.

But that’s not the trend right now. Lots of traders have been betting on lower prices and some have done well while others have been scorched. With so much action around us, I wanted to mention a couple of ways that traders are playing oil.

If you are an oil bear and think oil is headed lower you could trade the ProShares UltraShort Oil & Gas (DUG, $39.35, up $0.97) ETF (exchange traded fund). When oil falls, the shares go up. DUG is currently above its 200-day moving average and began moving higher in early July. If you want to double your bet you could also take a look at the new Powershares DB Crude Oil Short (DBO, $42.88, down $0.38) ETN (exchange traded note).

If you are a oil bull and think oil is headed higher you could go with the U.S. Oil Fund (USO, $91.26, down $0.54) which tracks prices of West Texas light, sweet crude oil. You could also take a look at the iPath Crude Oil ETN (OIL, $67.15, down $0.66) as well.

All of these ETN’s and ETF’s have options you can trade so play on paper first if you don’t understand them.

Rick Rouse
Rick@OptionsMentoring.com