How can I profit from a short-term increase in gas/oil prices?

April 12, 2006 4:07 PM

I'll be getting a net refund of about $300 from my fed & state tax returns and would like to invest it in some short-term way -- my wife and I are going to San Francisco for a conference in August, and I'm guessing we'll have about $500 in leftover costs once my work-related stuff is reimbursed. I'd like to turn that $300 into whatever I can to help cover those costs. Yesterday's report that gas will likely hit US$3 this summer points me in that direction.

The thing is, I don't know how to invest in this kind of thing, or really anything other than just putting money into a particular stock. Do I want gas (or oil?) futures? How do I get into that? My wife already has an account with Ameritrade -- would it be easy to do it through that account?

Perhaps most importantly, is there something else that's likely to be a better investment over the next three months? Again, I'm not looking to make a million bucks here, but I'm a grad student and my wife is a self-employed artist, so an extra $50-100 could be a big deal for us.

posted by aaronetc to Work & Money (27 answers total)

In general, I always thought that the sooner you needed the money, the less risky the investment should be.

That's why experts tend to recommend moving more of your investments to bonds as you approach retirement age.

I say throw it in something like an ING savings account; they used to have $25 sign up bonus (if you got a referral from someone who's an existing customer). They do have a good interest rate, although in three months, it's not going to add up to much.
posted by IvyMike at 4:14 PM on April 12, 2006

It's kind of hard to invest just $300 in stocks, futures or anything like that. And even if you could, you'd be taking a risk to try for a $50-$100 return in a few months (that's like a 100% annualized return, something that's usually gotten only with lots of luck in the picture). I would not expect a tip in this thread that's low-risk, high-return, or we'd all be doing it. Of course, the savings bank method will only return a dollar or two by August. If your wife has any mutual funds in that Ameritrade account your best bet might be to just add it to that balance and hope for the best.
posted by beagle at 4:17 PM on April 12, 2006

Rule of thumb for the market:
Those who know don't say, and those who say don't know.

Disclaimer aside, I don't think investing it in the market is a good idea. Your $300 trade is going to have an $11 fee to bid, and another $11 to sell. So that brings you down to $278.

You only have four months.

That means that to cover the costs of the trades, you'd need an investment with an annual yield of about 26%. That's really high, and really unlikely.

Save the Ameritrade account for larger, or longer-term investments.
posted by I Love Tacos at 4:17 PM on April 12, 2006

Note that gas is already up to $3/gal in San Francisco. It's possible that it will even go higher than that.
posted by aberrant at 4:23 PM on April 12, 2006

ING is a good suggestion as they have short-term introductory APRs plus $25 referral bonuses (I'm happy to refer you, email in profile, just to be helpful and not spam for referrals). I believe you can get 4.5-5% right now for three months when you deposit over $250 to start.

Anything other than that and you're better off doing odd jobs around the neighborhood a night or two a week to make $500 in 4 months. Hell, I don't know, cancel cable? Ask for a raise?
posted by kcm at 4:26 PM on April 12, 2006

Response by poster: We don't have cable and my salary is set by the state of Wisconsin, so those are out. :)
posted by aaronetc at 4:29 PM on April 12, 2006

aaronetc: maybe you've answered your own question: buy 100 gallons of gas now! When it costs $4.00 a gallon in the fall, you'll have made a hundred bucks.
posted by gemini at 4:39 PM on April 12, 2006

aaronetc: maybe you've answered your own question: buy 100 gallons of gas now! When it costs $4.00 a gallon in the fall, you'll have made a hundred bucks.

I think a lot of it will evaporate. Plus, how would you sell it?
posted by delmoi at 4:59 PM on April 12, 2006

Silver coins/bullion. It's almost doubled it's value in the past couple of years.
posted by hodyoaten at 5:18 PM on April 12, 2006

Response by poster: gemini: I asked about that last summer, actually.
posted by aaronetc at 5:25 PM on April 12, 2006

Everything everybody else has said about the likelihood of succeeding at this is true.

But, there's no better way to learn about the stock market than to start losing money in it. If you accept that you are rolling the dice you could look into alternative energy stocks. They've been doing well with the rising gas prices - I like ESLR at today's price and PEIX, while run-up lately, might still have some 'juice'. Proceed at your own risk - you could just as easily end up with 0 bucks, but that's part of the 'fun' of speculating on stocks. And keep in mind brokers fees - with only 300 bucks, you're pretty much giving up 10% to the broker, so you're starting out essentially in the hole.
posted by drobot at 6:24 PM on April 12, 2006

You need more money than that to buy futures. If you're really convinced that the price of oil is a good bet, you could buy USO, which is very likely to stay relatively close to the price of oil. I don't think there's anything similar for gasoline. There's also XLE, which is an oil sector fund.

Whether you'd end up with more than $300 by August doing that is of course uncertain. Personally I think the odds are pretty good, but nobody knows for sure. If you buy USO and the price of oil goes down to $50, you'd lose about $100. I think it unlikely that it would do worse than that, but it's possible.
posted by sfenders at 6:53 PM on April 12, 2006

You will learn far more with $300 of books on investing that you will by losing that same sum to the markets.

As so often happens in financial threads, b1tr0t nailed it.

Or if he wants to be really cheap, $300 of plain coffees at the Borders and Barnes and Nobles cafes... to be consumed while reading books about investing.

Just please don't spend that money on Rich Dad, Poor Dad. Losing it on the market actually would be a better use than that.
posted by I Love Tacos at 7:46 PM on April 12, 2006

1. Search AskMefi for a question asked a few months ago about the fastest way to use a windfall to make more money.

2. ???

3. Profit!
posted by intermod at 9:23 PM on April 12, 2006

ING is actually not your best deal right now; they're at 4%. I'd go with HSBC, they have a $25 referral (use promo code START, no referral needed) and are paying 4.8% through the end of this month. I would expect them to be above ING's rate after that.

Actually, wait. Open both! Open an ING account with $250 of the $300, then put the rest into HSBC (which has no minimum initial deposit). You make $50 on $300.

After a couple of months, HSBC will probably solicit you for a checking account and offer you $50 for opening one. If they do, and you can do a small monthly payroll direct deposit into that account (to avoid the monthly fee), then you've made $100 on your $300 investment.
posted by kindall at 10:05 PM on April 12, 2006

Also, when you take your money out of ING and HSBC, leave a buck or two in so they don't close the account on you. I think you have to leave the account open at least a certain length of time for most of those bonuses or they take it back.
posted by kindall at 10:10 PM on April 12, 2006

I'm no investment expert, by any means.

But something about the numbers involved sounds... scary to me, risk-wise. If $50-100 is "a lot" of money to you, and makes a huge difference in your life...

I would worry that the potential of losing $50-100 of your original $300 could be devastating for your finances.

I mean, to get the kind of return you are looking for over that timespan, you have to be picking something with some significant risk to it, right? ("the greater the risk, the greater the return" is the adage I am thinking of). And risk = the chance you will actually lose money on the investment.

My vague knowledge of investments is that if you have a really low risk threshold, you are limited to a low rate of return. If there were a way around that rule, well, we'd all be rich by now.
posted by beth at 4:36 AM on April 13, 2006

You will learn far more with $300 of books on investing that you will by losing that same sum to the markets.

This statement isn't exactly the best advice. If you want to read about investing - a great suggestion - head to the library or find resources online. Read the WSJ, Motley Fool, whatever you like. But don't waste 100% (or even 10% IMO) of what you want to invest learning about how to invest it. The unerlying advice is great - read up, but if you've only got 300 bucks to invest, don't give up a chunk of it at the bookstore.

This is why people don't have money in their bank accounts, because they spend it on things like investing books (or lattes or whatever.) My statement might be hyperbole, too, but if somebody is interested in the stock market, they should put some money in it. There's no better way to learn about it than to actually have some money at stake, place a few trades, follow a company, with the understanding that you're taking a gamble. If you lose some money, that's part of the learning curve. If you decide it's not for you, great, but you're only going to get that by actually seeing what happens to your 300 bucks.
posted by drobot at 6:41 AM on April 13, 2006

Kindall, what are HSBCs rates like when they're not running a promotion?
posted by ZackTM at 7:56 AM on April 13, 2006

They tend to be close to Emigrant Direct's, within a quarter of a percent or so. Usually Emigrant will bump their rate and HSBC will match it a few weeks later.
posted by kindall at 8:33 AM on April 13, 2006

b1tr0t - His wife already has an Ameritrade account - he's not opening a new account.

You sound like a broker :) And 300 dollars is plenty to open a savings account.

I'm not suggesting he buy options or futures, or even be able to get into that with 300 bucks. But 300 bucks is enough to research a company, buy a few shares in it (keeping in mind brokers fees), and see what happens. Follow the company. Yes, this is gambling, especially if he is looking for volatile stocks that could result in losing a significant portion of his money, but it's also very instructive. And long term, 300 bucks is not that much to lose. He also might make some money. When he has more money to put in, he'll be that much wiser for it.

You could do the same with paper trading, but I think the value of having some money at stake makes it much more instructive. You are much more likely to take unrealistic chances with a pretend trade than you would with a real trade.

I think what you're suggesting is ultimately right - he should educate himself by reading up, just don't spend money that you might one day invest on the books when they are free at the library and the same info can be found on a dozen websites. I just don't think he should stay away from the stock market because he only has 300 bucks to get started.
posted by drobot at 12:53 PM on April 13, 2006

Yeah, agreed - I'm not suggesting there's a solution to what he wants (a way to make a large return on 300 bucks in a short amount of time) but he's obviously interested in the stock market, and I do think that putting that money into the market (with some education, yes) is a good way to see how the stock market works, with the knowledge that there's a lot of risk. It's how I got started (with only a little more than 300 bucks) and that experience was invaluable, and helped me understand the books I was reading, and helped me make smarter choices as I kept going.
posted by drobot at 1:52 PM on April 13, 2006

I didn't generally find reading books to be of much help. Reading some of the excellent blogs that are out there, and generally keeping track of prices and other data was much more educational. But everyone learns differently. Fooled By Randomness is excellent though, yeah. I think anyone who's likely to enjoy stock market trading is probably also going to enjoy reading that.

Anyway, $300 doesn't buy much experience, but trying to learn this stuff from books is like trying to learn to ski by reading books about it. And it's not like you need a book to tell you what to do with $300 in the stock market: The only thing you can do with such a small amount is to buy one thing and hope for some luck. Like you see in poker on TV, when you're on the short stack and the only reasonable move is "all in". When the comissions for one trade make up a big fraction of your account, there's no other way to win. The reading, studying, learning, and paper trading, and so on, all the mental effort it takes to learn to beat the market by whatever means, would only be useful once you can increase your capital (or decrease those trading costs) by an order of magnitude.
posted by sfenders at 2:08 PM on April 13, 2006

For a three month period I wouldn't do anything. Even putting it in a high interest savings account would only earn you about $3 more than putting it under your mattress. The clever alternative would be as Kindall suggests, if you think $25 or $50 is worth your time and trouble.

... there's no better way to learn about the stock market than to start losing money in it.

That is about the silliest thing I've heard in a long time. How about the best way to learn about skiing is to break your leg. The best way to learn about gambling is to feed $100 of quarters into a slot machine. The best way to teach a 16-year-old to drive is to just hand them the car keys.

And as b1tr0t said, gambling is not investing and teaches you nothing, other than never to do that again.
posted by JackFlash at 2:16 PM on April 13, 2006

JackFlash - There was some hyperbole in that satement (see my follow up comments.) You will learn more about skiing by getting hurt doing it than you will by reading about it. That doesn't mean you have to break your leg, but it is useful to get on the slope. If you're not willing to get hurt don't ski - same advice I'm giving - if you're willing to accept that you may lose a lot of money, the experience of actually trading is invaluable in learning about the market.
posted by drobot at 2:24 PM on April 13, 2006

... the experience of actually trading is invaluable in learning about the market.

I'm not sure what trading teaches you about the market but I can assure you that trading has little to do with investing.
posted by JackFlash at 2:45 PM on April 13, 2006

I'm not sure where a definition of "investing" that is relevant to the stock market and doesn't include buying something with the expectation of selling it later on for a higher price is useful, but it's got nothing to do with the question.
posted by sfenders at 4:05 PM on April 13, 2006