How to Invest in Rubber

by Patrick Gleeson, Ph. D., Registered Investment Adv
Options trading can be risky no matter what asset lies behind it.

Rubber is a commodity, like gold, wheat and oil. Commodities are fungible in that any given instance or portion of a commodity is indistinguishable from another. That makes them easy to trade because inspection is unnecessary to determine a fair price. A worldwide market exists for rubber and there are numerous exchanges that trade it. Like other commodities, rubber is subject to wide price variations depending on market conditions.

Bouncing Along

Buy stocks issued by companies dedicated to rubber manufacturing. Tires, for example, are an important product with a constant demand that's unlikely to be adversely affected by technological obsolescence in the near future. Tire companies have histories of providing good return on investment. Companies specializing in industrial rubber products also have histories of solid investment returns.

Purchase regional exchange traded funds (ETFs) in areas with large concentrations of rubber-related industries. They invest in diversified pools of equities that trade on a stock exchange like stocks. ETFs for Malaysia such as the iShares MSCI Malaysia and the FTSE Asean 40, among others, are heavily concentrated in rubber plantations and production.

Buy futures or options in rubber. In a rubber futures contract the buyer agrees to accept delivery of a set quantity of rubber from the seller at a price agreed upon when the contract is struck. A rubber option is a contract that gives the buyer the right, but not the obligation, to buy a specified quantity of rubber at a price agreed upon when the option is purchased. Rubber futures and options are traded on all major commodity exchanges around the world.

About the Author

Patrick Gleeson received a doctorate in 18th century English literature at the University of Washington. He served as a professor of English at the University of Victoria and was head of freshman English at San Francisco State University. Gleeson is the director of technical publications for McClarie Group and manages an investment fund. He is a Registered Investment Advisor.

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