How to trade or invest in oil in this market

A couple of months ago, WTI crude oil was selling for more than $100 a barrel. If you would have told a trader or an investor that WTI crude oil would be fighting to reach $50 today, he would probably have laughed at you. But today, traders and investors were cheering oil which saw WTI rise 3.6% to $49.21 a barrel. Is this the sign of a new trend, or is it simply short term noise fuelled by news like what's happening in Yemen? And more specifically, how to turn out a profit trading or investing in oil companies in that environment?

How to invest in oil?

According to traders and investors I see arguing over oil prices on social medias, oil will go down, up, or sideways. Who's right? My answer will both disappoint and relieve you; they are all right. The reality is that asking where oil is going is asking the wrong question. Over long periods of time, we know that oil will fluctuate a lot from undervaluation to overvaluation, that's a fact of the "free" markets. Will oil go up in the long run? Of course it will! But do you have the patience to wait the time that it takes? If you're in for the long run, then buying oil now could turn out to be a lucrative idea. You could also buy puts options as insurance if you're scared oil might go dramatically down. They will protect the value of your shares, as your house insurance protects the value of your home. 

How to trade oil?

If you're a trader, then you don't have months or years in front of you to get your money back. You want your money in, and you want your miney out, with a profit. Why gamble by choosing a direction when you can bet on volatility? Oil volatility is near its peak as you can see on the chart below.

One strategy would be to buy a call option and a put option at the same strike price and same expiration. You would lose your premiums if oil move sideways, but you will make money if oil moves either up or down. However, if your expiration date is far enough, it is highly improbable that volatility will suddently remain flat until your options expire. 

Ask yourself the right question

Instead of trying to guess where oil is going, try to understand your position and what you want to do exactly. Then, adopt the right strategy for your position. Trying to guess day after day if oil will go up or down is a receipe for a lot of stress, frustration, and potentially portfolio disaster. 

Will ReWalk run up soon?

There are millions and millions of disabled people who can't walk on Earth. ReWAlk (RWLK) has a unique and noble mission; helping those poeple walk again with the help of exoskeletons. Altough it is easy to be touched by their offering, are ReWalk shares worth buying?

With a capitalization of about $150M, ReWalk has a lot of room to grow. Furthermore, it is the only exoskeleton that the FDA approved, so basically there is no direct competition. Of course, there is indirect competition such as stem cells based potential cures, but those are probably decades away. ReWalk can prove to be the perfect solution in the meantime.

However, the problem is that ReWalk is not affordable at $85K. Seriously, how many disabled people can afford that? Moreover the exoskeleton system is kind of clumsy and heavy. ReWalk is aware of those problems and the company is working both at lowering the price and improving the technology. Patience is required here, but how long should we wait? The stock market is already at his - or close to - its peak in my opinion. What if there's a crash soon? Will ReWalk be able to perform in an hostile economy? ReWalk already has poor financials and has no room for errors. 

On the bright side, the company revenue tripled in Q4 2014 to $1.5M. Also, I see the lockup expiration on march 11th being passed has a good thing. Investors that got shares at IPO had a chance to sell them and those who wanted to get out did.

My probabilistic model shows that ReWalk should go back up near to $20 in the next months. However, that's contingent of no new major road bump. I consider RWLK to be a speculative buy, but it can be rewarding to swing trade it.