Crude oil is at a nine-month high due to the hostilities in Iraq.
Securities in the sector such as United States Oil (NYSE: USO), ExxonMobil (NYSE: XOM), and BP PLC (NYSE: BP) are surging. While the short term performance by Big Oil stocks has been bullish, so is the long term outlook. Many previous articles on this site have discussed the many factors why long term investors should have a position in Big Oil stock such as ExxonMobil and BP, among many others.
The current fighting in Iraq adds to the many reasons.
When there is turmoil abroad, investors are now fleeing to oil rather than gold (NYSE: SPDR). That increases the appeal of securities in the gold sector. There are many other features that make ExxonMobil, BP and others more attractive to investors than gold. The most obvious is that the oil market is bigger. The market for gold is so much smaller that the price gets driven up very quickly.
Big Oil is much more appealing to income investors, too.
Many Big Oil stocks pay above average dividends. The income feature of gold stocks is very weak. In addition, ExxonMobil and others have a history of increasing the amount of the dividend, which rewards long term investors. Again, that is missing from gold stocks. The cash flow for gold stocks does not come anywhere near that for a Big Oil company.
If investors feel that Big Oil stocks are peaking, then writing covered call options is a viable option.
That was detailed in a previous article on this site. Dr. Joseph Louro, an options expert who heads InvestView, an investment education and financial technology firm, advises that the great majority of call options are never exercised. That makes it a low risk strategy in a high reward sector. Iran is demonstrating, yet again, the long term appeal of Big Oil stocks.