I only recommend options on my subscription sites JubakAm.Com and JugglingWithknives.com. And this week on those sites I’ve closed the two VIX CALL Options I bought back on December 31 as protection (and potential profits) from an increase in market volatility exactly like that we got in January. The gains on those two options was 17% and 87% respectively. (I’ve you want to subscribe and get my options picks, I just sent out a 20% off email. You should see it in your email box if you’ve signed up from free end of the day alerts on this site.)
But now I’ve got a hedge against volatility (and for profits) that I can recommend to readers of this site since it doesn’t require anything more complicated than buying of selling shares of natural gas companies.
On Saturday, January 15, in my “Saturday Night Quarterback” post on JubakAM.com I wrote that conflict (a more comprehensive term than “war) between Russia and Ukraine remained a low probability event–but that the probability wasn’t zero and the the odds of conflict had increased in the past month.
What’s happened since then?
The odds of conflict have climbed with U.S. intelligence estimates putting the number of Russia troops on the border with Ukraine at 175,000 up from an earlier estimate of 100,000 and President Joe Biden telling a press conference that he thought Russian President Vladimir Putin would “move” on Ukraine. (Was Biden’s comment helpful? I’d argue that it was intended to put another warning shot across Russia’s box, but that it may have actually increases the odds of conflict of some sort.)
Which means that hedging against the financial market turmoil that a Russia/Ukraine conflict would create and especially hedging against the chaos that sanctions against Russia by the Western alliance (and from the consequent Russian counter-actions) is even p more pressing than a week ago.
Here’s my strategy as I outlined it on Saturday:
“It’s my belief that if the situation in Ukraine does result in armed conflict, the duration of military activity will be relatively short–assuming that no one miscalculates and we don’t plunge over the brink–but that the length of the economic and financial market disruption will be far longer.
First thing to do is forecast your near term cash needs and raise enough cash now so that you won’t have to sell during the worst of any dip on the military action. Got mortgage payments or tuition coming up? Make sure that you’ve got the cash to pay for them now. (This also has the advantage that it takes some of your portfolio to the sidelines just in case the recent sell off should deepen.)
Second thing to do is to buy shares in non-Russian natural gas suppliers to the European market that would benefit if natural gas prices spike as a result of sanctions and counter-sanctions. The non-military battle over Ukraine will be fought in the natural gas market and that battle is likely to last longer than the actual military conflict.
Natural gas stocks have another advantage as a hedge right now. The price of natural gas and the price of these stocks looks to be on an upward trend even before the effects of any conflict in Ukraine. Supply disruptions, surging demand and lagging production all have pushed the price of natural gas higher in recent weeks. I made Conoco Phillips (COP) a Quick Pick in my January 8 video. The shares are up 7.6% since then as of the close on Friday, January 14. I’d use them as a Ukraine conflict hedge and I’ll be adding them to my Jubak Picks Portfolio on Tuesday, January 18.
Three other stocks I’m recommend and that I will also be adding to the portfolio on that date are Norway’s Equinor (EQNR) with its huge North Sea and Norwegian continental shelf resources and its ability to get natural gas to Europe quickly, and Cheniere Energy (LNG), the big liquified natural gas exporter in Texas. U.S. natural gas exports are already surging and I’m sure that everyone in Europe and Asia is looking to lock up supplies now–on the surge in winter demand–and willing to pay for the privilege. My last pick is Pioneer Natural Resources (PXD), the big natural gas and oil producer in the low cost Permian Basin of Texas. I particular like Pioneer because the company recently accounted that it would not be looking to hedge the price of its production and wouldn’t be spending money on new hedges. Which is exactly the step you take if you believe the energy prices are headed higher.”
The price of these stocks, and thus the price of this hedge, has become more reasonable in the last few days thanks to a decline in natural gas market prices on forecasts of a better balance between supply and demand.
To sum up my recommendations:
Buy ConocoPhillips (COP) in my Jubak Picks Portfolio with a target price of $92. The shares traded at $82.41, down another $3.76%, at 3:30 p.m. on Friday, January 21.
Buy Equinor (EQNR) in my Volatility Portfolio. The shares traded at $27.85, down another 2.79%, at 3:30 p.m. on Friday, January 21.
Buy Pioneer Natural Resources (PXD) in my Jubak Picks Portfolio with target price of $222. The shares traded at $205.26, down another 4.50%, at 3:30 p.m. on Friday, January 21
Buy Cheniere Energy (LNG) in my Volatility Portfolio. The shares traded at $103.29, down another 2.83%, at 3:30 p.m. on Friday, January 21.
Please note that these are short-term trades intended to hedge the risk of conflict in Ukraine and turmoil in the natural gas and financial markets.