Lock In Gas Prices
November 30, 2008 – 8:32 pm
I paid $1.66/gallon this weekend when I filled up my wife’s car. We don’t drive a ton of miles each week, but I’m still glad gas prices have come down quite a bit.
I came across an interesting article that describes one way to lock in gas prices that I would like to pass along. The method essentially requires an investment in the US Gasoline Fund (UGA). UGA is an ETF that tracks US gasoline prices. If prices gas prices continue to fall, then the value of your UGA shares will also fall, but you’ll be paying less at the pump. If gas prices go up at the pump you’ll pay more there, but your shares of UGA will also go up.
The main downside to using this strategy is the transaction costs required to buy and sell UGA. With most trades costing $5 to $12/trade, you’d clearly want to limit the number of buy and sell transactions.
Whether or not you think this is a good idea, I think it’s important to recognize that having some cash on hand to take advantage of deals that arise. Although this is not necessarily a “deal” per se, having a bit of liquidity available can be quite beneficial given the volatile markets and item prices.
Disclaimer: No positions in UGA at the time of post. Please see site terms and conditions for more information.
Image Credit: Ella Marie
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