What do you think of the idea of buying call options on oil?

This is a way to hedge against gas prices going higher, and even if oil goes down, making the calls worthless, the investor would benefit as a consumer from paying less for gas.What do you think of the idea of buying call options on oil?
It can be a decent short term idea. There are ways you can hedge oil. You can go long on oil futures, long calls on oil related companies and long oil ETF and long calls ETF.





The minimum amount you need to invest in futures is too much for you, so ignore that option.





ETFs where the crude is the underlying (eg, USO, DBO) are pretty good and they more closely track the cost of oil. Calls require less capital, but liquidity can be sometimes good, sometimes bad (spread can be huge). You also have to know what you're doing in terms of options pricing, so you're not overpaying on some of the options. Also, you always need to roll over the options, so it can be a bit of a chore and expensive way (over the longer term) to hedge oil prices.





The oil companies only have a loose correlation to the price of oil, as they still tend to have market beta as a major factor. Thus, long ETFs tend to be the best way to hedge the price of oil. However, your comsumption of oil is probably not too much, perhaps a few thousand dollars a year, so the total amount you need to invest is small.





It is my opinion that you simply just take a larger weighting of oil related assets in your diversified portfolio to help hedge away the price, but don't go overboard if you're just trying to hedge. If you're trying to speculate, then that's a different story. I prefer DBO over USO as it tracks the underlying benchmark better. USO has massively underperformed in the past and then has lately outperformed, which makes me worry that they are poorly run (you're buying too much benchmark risk).