TRUMP HYDRO VS OIL TRADE INSIGHT
07-11-24
On 30/10/2024 (see below), we spoke about the correlation between hydro and oil and the potential for the spread between the two widening whilst looking into the main producers in the US.
Looking at the current market since Trump has become president-elect, the spread has widened significantly, with NextEra Energy down 7% and Exxon Mobil up 3% at the time of writing (Wed 6th Nov, 13.00 GMT).
If you see the spread widening further, you could consider adding to the Exxon Mobil calls.
Original note follows:
The outlook for oil and hydro energy stocks presents distinct opportunities and challenges influenced by economic trends, regulatory shifts, and evolving market dynamics.
In a recent interview with podcaster Joe Rogan, now President-elect Donald Trump expressed doubts about nuclear energy, cautioning that, despite support from Republican voters and GOP lawmakers, this energy source poses risks and is excessively costly. “They get too big and too complex and too expensive,” he remarked.
It has been very clear that Donald Trump’s stance on oil emphasises increased domestic production and support for the fossil fuel industry. He has consistently advocated for expanding U.S. oil and gas production, a goal he pursued during his previous term and has reiterated in his 2024 campaign. Trump criticises current policies restricting drilling permits on federal lands and has pledged to remove regulatory “red tape” to streamline fossil fuel extraction and pipeline construction. Additionally, he opposes the Biden administration’s emphasis on renewable energy, viewing it as costly and unreliable, and instead promotes traditional energy sources like oil and natural gas as key to U.S. energy independence.
In short, Trump’s energy policy focuses on boosting oil and gas production while challenging renewable fuel policies he claims lead to higher inflation and energy expenses for U.S. consumers.
NextEra Energy Resources, a subsidiary of NextEra Energy, Inc., is the largest wind farm operator in the U.S. As one of the world’s leading producers of wind and solar energy, NextEra has made significant investments in wind farms across the country. The company’s renewable energy portfolio includes projects in numerous states, and it continues to grow its wind energy capacity to meet the rising demand for sustainable energy.
NextEra’s leading position is driven by its commitment to renewable energy and substantial investments in infrastructure, technology and innovation within the wind energy sector.
ExxonMobil ranks first among the United States’ top ten oil and gas producing companies based on market capitalization. As of 30th October, the Texas-based oil supermajor had a market cap of $521.05 billion.
In comparison, NextEra Energy is currently up around 30% and Exxon Mobile is up 17% this year
If you believe there could be a shift in the energy sector in favour of oil and gas compared to wind energy under a Trump administration, you may consider a long-short-pair trade as in the example below.
30/10/2024 prices below
NEXTERA ENERGY TRADING $79.21
EXXON MOBIL TRADING $117.69
Buy +1 NEXTERA ENERGY 72.5 Sep25 Put @ $4.75 = $475 debit
Buy +1 EXXON MOBIL 125 Sep25 Call @ $7.25 = $725 debit
Defined risk profile – maximum loss is equal to the net option premium paid (+ fees and commissions)
Total consideration: $1200
The contents of this article are for general information purposes only. Nothing in this article constitutes advice to any person and any investments and/or investment services referred to therein may not be suitable for all investors. If you’re unsure whether any investment is right for you, you should contact an independent financial adviser. For more information, please see IMPORTANT DERIVATIVE PRODUCT TRADING NOTES.
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