Throwing this out there and asking fellow Oxys for advice. With the share price back at a reasonable level, and considering that we’re barred from trading Oxy derivatives, I’d like to ask around if you have any interesting hedging strategies.
I have shorted APA in a dirty hedge, but sadly the short ratio on APA is so high you’re pressed to find shares to short. Puts on APA are so expensive that the insurance is not really worth it.
Short XOM is another idea, as I’m not particularly excited about their business plan, but having to pay their divvy out of pocket makes that strategy unattractive.
Obviously being a dirty hedge there’s other risks so having a portfolio of hedges would be better too.
15 replies (most recent on top)
Oxy stock has traditionally followed oil prices so in times of predictable ups and downs you could hold and get a nice dividend. That strategy doesn’t work anymore because of lack of dividend. Actually it didn’t make sense as soon as VH took over and the stock price started sliding. Let’s get back to the old days with true growth and the dividend. Oil prices will help but with the amount of debt this repair will take a long long time. This is no longer the darling of Wall Street. Actually who knows what it is.
Each year you vest that is treated as income on that day, and the cost basis for the stock is based off the vest date. If you hold the stock any downturn and you have lost money based on the vest date price. In the past I have just sold mine the day it vest, so I can actually realize money in the bank on the income I was taxed on. Lately I have been holding the stock and I am losing money now on my original cost basis. On some I am not sure I can even cover the taxes I paid on the income. Going forward I think I am just going to sale the day I vest and the stock becomes available. Do any of you know how the new capital gains tax will affect us next year?
We cannot trade derivatives in Oxy or hedge Oxy stock.
You’re perfectly free to trade whatever energy stock you choose.
Some seem to totally be missing the point about the LTI.
Suppose you have 500 Oxy stock that will vest this time NEXT year and you are worried that when next year rolls around the share price will have gone down (insert plausible reason here). There’s really nothing you can do to protect yourself from that eventuality other than wait and see. You cannot sell “your” Oxy stock cause they haven’t vested.
Hence the idea of a dirty hedge. It’s called dirty, because you have to use a company other than Oxy, because Oxy rules prohibit shorts and derivatives in Oxy. There are risks because Oxy and say XOM might not be well correlated.
I don’t consider my LTI as something that needs to be hedged. Once it’s vested it just goes into my portfolio with all the other stocks and I consider them all the same with strategies on what to sell and when. If I think there’s a better opportunity with a different stock I’ll sell the Oxy to use it for something else. I highly doubt there’s a company policy on shorting stocks of other companies.
That is a very interesting strategy to short another oil company. Is it within Oxy guidelines?
Recap from the OP here.
I bit the bullet and shorted 1000 of XOM at just a $60.35. Started sweating a great deal when XOM hit $62.00.
Since then I’m feeling pretty good about myself being up about $4K. Granted my LTI is down about $8K, but honestly I didn’t have the balls to short more XOM. This is Darth Vader’s company we’re talking about here.
Anyway curious to hear from other fellow Oxidizers with LTIs.
When does the collar expire?
300kbopd is half of Oxy oil production. So the hedge is further hedged by only applying to 50% of our oil revenue.
A double-hedged sword if you ask me
Good point on the 75. How long does this last?
As part of last year’s “costless” hedging strategy 300,000 bbls/day were hedged as part of the 2 way collar to cap at $75 WTI. So price upside pretty much stops at $75.
I think the point OP is making that since some of the LTI has not yet vested, how do you protect what you have now so you can OXY when it vests 1 year from now.
To day Oxy is down 5% and XOM is down 3% so if you are short XOM $1 for every $1 unvested OXY you’ll only be down 2% net.
If I wanted to reduce exposure, I'd sell a portion of OXY or short XOP. However, I think there's still quite a bit of room to go up.
You honestly invest by asking other people? Strangers who could well be on the opposite side of the trade from you? id–t LOXY - hope you lose it all
Go to reddit
Interesting problem. You are a lot more sophisticated than most people on this board.
Good luck.