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How to Play the NatGas/Oil Divergence: Stock Picker
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CNBC.com Writer
Investors looking to play the crude oil and natural gas price divergence should follow these trading tips, said Daniel Dicker, independent oil trader at TheStreet.com.
“We’re talking about the capital market trading tail wagging the crude dog while the natural gas is really responding to fundamentals,” Dicker told CNBC.
Dicker’s Tips:
1. Buy Natural Gas and Sell Crude
“The ratio is a little bit dicey depending on volatility—it’s somewhere between 3 to 4 contracts of crude to natural gas but we're not sure exactly where,” he said. “It's a very risky trade but the beauty is that if you get it right and if prices go back to a 6 to 10 times multiple, which is the historical norm, you can retire to the Bahamas!”
2. Inside Sector Swap
“Whatever piece of your portfolio that’s engaged for your energy, I suggest a sector swap. Get out of the integrated oil companies, and buy natural gas companies” he said. (Read below for his buy/sell recommendations.)
Sell
ExxonMobil [XOM
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ConocoPhillips [COP
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Chevron [CVX
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Buy
Apache [APA
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Anadarko Petroleum [APC
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Devon Energy [DVN
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XTO Energy [XTO
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Chesapeake [CHK
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Disclosure:
Dicker owns shares of Chesapeake Energy and Chevron.
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