Locking in the price of diesel

[David Brady]

Folks,

The average price of diesel, country wide, is around $2.50
per gallon. We all know that in the long run, prices will go
up. I stumbled upon and ETF that allows you to lock in the
price of gasoline. The ETF is managed by a firm called
United States Commodity Funds LLC (I have no financial
interest). Although USCF doesn't have an ETF that tracks
diesel fuel prices, gasoline seems to be a reasonable
approximation. The gasoline ETF has a ticker symbol: UGA

Today's price for UGA is $23.96. Assuming I'll travel 10,000
miles next year, and I get 7 mpg, I'll need 1500 gallons. At
today's diesel prices I'll spend (1500 x 2.5) = $3750, so I
buy $3750 worth of UGA. As the price goes up at the pump,
I get the same percentage movement in UGA. After each
fill up, I call my broker and sell the same amount of UGA.
This way prices can fluctuate all they want but I'm guaranteed
to not spend more than $2.50 per gallon for my next 1500
gallons.

Of course, as with any futures contract, the price per gallon
may go down (not likely). In this case, I'll spend less at the
pump, but my UGA holding will decrease by the same percentage.
In this case I'll probably not sell UGA and simply hold it till
prices appreciate.

David Brady
'02 LXi, NC