|Strategies > ESHA
Energy Sector Hybrid Approach (ESHA). .
Notwithstanding, both the ultimately finite supply of oil and natural gas in the ground and the long and wide-spread drive to replace them with non-carbon energy sources, it is generally agreed that oil and gas will need to be with us for many years to come.
Since 2007, crude oil and its distillates have traded very actively, both up and down in a tremendous range with sustainable, tradable trends and consolidations. The volatility has been quite pronounced in this type of market environment along with abundant liquidity that gives ample potential opportunity to profit from a number of different trading approaches, best suited to the particular phase of the market. Remember that volatility can be an important enabling factor in trading options. For this strategy, the techniques the Advisor looks to employ, but is not limited to, are as follows:
Volatility Exploitations: Similar to the SIPC strategy, when volatility is high, the Advisor will look to collect premium by writing (selling) options on the Crude Oil, Heating Oil, Reformulated Gasoline or Natural Gas futures. In the case of an overall volatility rise the Advisor will look to sell both out-of-the-money calls and puts. In the case of volatility increase on one side the Advisor will look to take advantage of the market by selling either a put or call. The strike prices chosen are determined by research, technical analysis and fundamental factors.
Swing Trading: The energy markets routinely have very abrupt changes of direction followed by shorter term but exaggerated price movements that lend themselves to profitable opportunities on both the short and long side of the market. These swing trades typically last anywhere from 1 day to 2 weeks and can be outright future positions, future spreads, covered options, options or option spreads.
Spreads: Heating oil, and Reformulated gasoline are derived from Crude Oil. There is a typical price relationship among the three that is effected by seasonal factors, consumer behavior, weather and refining capacity. When these relationships get too far out of line, the Advisor will look to take advantage of these inefficiencies by going long or short any of these three commodities using outright futures contracts or options on them. The natural gas market is affected by supply, weather, and consumer factors. Similarly, there is a normal seasonal relationship between contracts. Where there is a discrepancy in this relationship the Advisor will look to take advantage of the market by going long and short different Natural Gas futures contracts options on those contracts.
Trend Following: The Advisor will look to take advantage of the long-term trends in the Energy markets. This will be done by utilizing outright futures contracts, inter and intra commodity spreads and/or options depending on the strength and type of the Advisor’s signal and indicators. Trades will typically last from 2 weeks to 6 months.
These strategies and others will be employed as the Advisor deems appropriate, but not all will be employed at a given time. As with all ACE strategies, the Advisor retains the discretion to mix and match elements of other strategies or add new elements, as market conditions and Advisor’s judgment dictate. These could include, in part, going long or short outright futures, spreads, and options in the stock indices and other commodity markets. The Advisor believes, an investor should allow a minimum of 18 months, approximating a full market cycle, before evaluation performance of this strategy.
Energy Sector Hybrid Approach (ESHA)-Minimum Starting Value Required*
Regular Program $20,000
Lesser amounts may be accepted solely at the discretion of the Advisor
*Stated minimums are net of any front-end fees.
THERE IS SUBSTANTIAL RISK OF LOSS IN TRADING FUTURES AND OPTIONS. ONE
MUST BE AWARE THAT THE POSSIBILITY OF UNLIMITED LOSS EXISTS IN
WRITING OPTIONS. PEOPLE CAN AND DO LOSE MONEY.