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New ways to beat high gas prices |
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How hedgelets work |
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Binary option hedgelets
are traded exclusively on HedgeStreet, a person-to-person
trading site that does not involve brokers. At the site,
you can view various commodities, including at-the-pump
gasoline and the price for each contract that's set
by the trading, much like a stock's price is set.
The binary option
hedgelet is an all-or-nothing option: You either get
a $10 payout for each contract or nothing.
The more likely an
event is to happen, the higher the price of the contract.
The more something is a long shot, the lower the price.
The going price changes frequently throughout the day.
The price of gas
the market uses is that stated by the federal Energy
Information Administration. So, let's say the price
of gas today is $2.89. You might think it's likely that
the price of gas at the pumps will go up in the following
week. At HedgeStreet you find you can buy hedgelets
for gasoline at >$2.90 (greater than $2.90) five
days later for $4.45 each.
Let's say you buy
100 contracts. That costs you $445 and your potential
risk is $445.
If at the end of
that week, the price of gasoline is greater than $2.90,
you would get $1,000 (100 contracts times $10 each)
-- or $555 profit, plus your $445 initial investment.
If, at the end of
the week, the price of gas is $2.90 or less, you lose
your $445.
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But a typical consumer getting involved in commodities
trading may be a mistake, says Errold F. Moody Jr., a financial
adviser based in San Francisco.
"They just wouldn't know how to use it properly,"
Moody says. "The typical consumer doesn't even know what diversification
is. Something as complex as a derivative or a future would be over
the heads of the vast majority of consumers."
Moody says the issue isn't that consumers can't make
money with things like hedging. The trouble comes when you are dealing
when people who lack advanced financial training get involved in
sophisticated investment techniques, he says.
"It's not that it won't work. It's that your
typical consumer doesn't have the insight or true capability or
ability to identify risk and reward in this type of marketplace."
While it may seem comfortable to talk about the direction
of gasoline prices because people deal with them every day, Moody
says that getting involved in investing without the proper information
can amount to little more than gambling.
Rebate cards:
The plastic solution
If all this seems like too much trouble, credit card companies are
all too happy to offer a more convenient option. Nearly every retail
gas station now partners with a major bank or card issuer, and many
of those cards offer a rebate
on every gallon of gas purchased with their card. Rebates vary by
card, but can range from between 1 percent to 5 percent or more
off every gallon.
"The savings can be significant," says Samuel
Wang, spokesman for Citibank, which has dozens of rebate cards geared
toward gasoline purchases.
"If you look at $3 gasoline, a 5 percent rebate
is 15 cents per gallon. That's not chump change," he says.
The trick with rebate cards, however, is that in order
to enjoy the benefits of having a rebate, consumers must be disciplined
enough to pay off the entire balance at the end of each month. Otherwise
interest rates will obliterate whatever savings a driver might have
enjoyed.
"You have to figure out how much you are spending
a year and figure that against the potential savings of using one
of these cards," Moody says. "If you are a big gasoline
consumer and buy in the quantities that might justify the upfront
and ongoing costs that come with the card, it might make sense.
But to go out and get another credit card just to save a few cents,
I would really want my clients to work out the numbers first to
see if it is worth it."
Michael Giusti
is a freelance writer based in New Orleans.
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