Energy Time

As a trader, you tend to want to anticipate fast movements. As an investor you tend to want to look for value. As an option player you tend to want to sell premium high and buy premium low.
Right now I like selling premium in energy names as it capitalizes off of cheap prices that have undergone forced liquidation that is the driving mechanism which creates value. There are stocks selling 30% or more below where they were just a few months ago and the market determined in NORMAL conditions that the price was rational there. Comparing things to an "irrational peak" and declaring it on sale just because it is down 30-50% from the peak is not necessarily rational. However, compare where it was relative to the last irrational lows, and use sentiment and psychology in addition to any kind of fundamental analysis and you have a better chance at delivering a propper prognosis.

Was energy in a bubble? In terms of sector rotation energy is the last to outperform in a bull market and tends to continue even in bear markets. Financials tend to be the first to outperform and tend to get hit the hardest in a financial crisis. Right now there is no price action that looked "parabolic" in energy (although June looked a little bit overly enthusiastic) and the companies still have high cash levels. Energy (the XLE) also was barely above 2008 highs and is now below those highs.  There also is a built in mechanism where if energy stocks can't grow as a result and aren't able to produce as much energy the supply of oil tightens (assuming demand remains the same) and so price of oil must eventually rise. If things get worse and energy companies go bankrupt, that would be even more bullish as the decreasing amount of energy companies have more market share to obtain on average.
I believe the price action was first rational sell off due to sanctions on russia in the US and europe but then lead to forced liquidation which is rational in the sense that people don't want to owe more than they have, so they must sell to avoid margin calls and as a result prices may drop quickly which forces more margin calls and stop losses. While there is no telling how much further prices go, it can be ascertained that people don't necessarily want to sell, it just is better than the alternative in their situation. The forced deflation due to sanctions on Russia may cause damage, but eventually CHEAPER OIL will provide stimulus for those that use it the most which means increased capital available to businesses and consumers. Additionally, conflict raises the chance of wars, which can eventually trigger higher prices. Russia is very dependent upon oil for their economy while the US benefits from oil substantially WHEN prices rise to high enough levels as due to hydrolic fracking they are on pace to become the #1 producer in oil in just a couple years. However, US also benefits from low interest rates and has a very large part of their economy in technology and financial industries hich are in great position to profit from these conditions. The growth of business triggers growth in energy demand typically as it provides more jobs and causes more people to drive cars more often and require gasoline.

It is of my opinion that there are multiple tail winds ahead for the energy sector.

With implied volatility high you can sell puts and effectively promise to pay a particular price if you still hold the contract at time of expiration and that contract is below the strike price and get paid for that obligation. So you may wish to sell a contract at the strike price of your upside target in a year and promise to buy it at that price and you will get paid MORE than the difference between the current price and the strike price. You will be forced into the shares should the price not rise above that, but should prices go up or remain flat you still make money, and if they go down you get it at a slightly lower price than if you just bought the shares now. However, it is not as easy to sell so you must be thinking long term. OR you can instead choose to use it as effectively a limit buy order that may not get triggered if prices only momentarily cross below and then rise above that price but you will get paid for your obligation to buy at that price. The key in selling options is that implied volatility must be at a historic highs or relative highs and you must be able to tolerate the risks that come from the stock going to zero, AND you probably should also set aside the capital needed to buy the shares that the contract obligates you for (usually 1 contract for every 100 shares). The alternative is just buying the shares if you like the company, the price, and can mange the downside through sell orders. Additionally, if you choose to sell option to open, you can always buy it back to close... but keep in mind that the price of the option could go up and so there is the possibility of loss should you terminate the contract early.

Warren Buffett sold S&P puts in 2008 or 2009 that he locked in and acquired capital. He effectively bet against the S&P going below 650 and implied volatility was near it's highs so he got paid quite a bit. Since he was correct he was able to use that capital to buy and make money on additional shares and if he wanted now he could effectively buy a put to cancel out the risk at much higher stock prices (which equals much lower cost than he sold them for which provides profit between the two plus what he may have made from putting that cash to work). historical extremes can be looked at as "mispricings" seperate from the mispricing of the individual security. So when you can identify mispricins on BOTH the asset class it represents AND the cost of the option itself, there is tremendous opportunity if you play it right.

Option Addict posted some good energy ideas and reason for the theme here.