How to hedge Chevron

I recommended Chevron (CVX) a couple of weeks ago and thought it would not decline too much from $100. Apparently I was wrong. I quite underestimated the scope of the pessimism in the oil sector that has also dragged down the best oil stocks like CVX or XOM. Am I worried about CVX? Not an iota! It is still a great and one of the best dividend stocks in the world you can find at the moment with reasonable valuation. If anything I just add more for long-term when it drops. This is the time period when you can really build up a fantastic portfolio for wealth growth for your retirement. It is simply too difficult to find such kind of great value stocks when everything looks rosy!

Having said that, a question should still be asked whether there is a good way to hedge against the temporary downside risk for CVX? The answer is certainly yes. For most people out there, options are probably not a way for them to do hedging. But I think you can do something else simply for this purpose. Actually you may have already got the hedge setup without knowing if you followed my advice to have bought the refinery company, VLO. You can read here to see why VLO is thriving when oil price is weakening. As I said, oil could decline again and VLO should be doing great. This is exactly what has happening. Now the question is whether oil has bottomed after it has dropped to low $50s. I don't think so. Technically and fundamentally oil is till in a weak spot and even though it is recovering a bit these days, chance is high that it will come down again. We are simply producing too much oil at the moment but the demand is not there to match the supply. The world economy is in a total mess and the Greece and China's crisis has added more to that. So I think the good days for VLO is far from over and it should continue to be doing very well at least in the next few months. Now check out the chart below to compare VLO (blue) vs CVX (red). They are almost like a mirror image, aren't they? In other words, if you hold both CVX and VLO, your VLO will be doing well during the depressing period for oil, which will compensate the potential weakening of CVX. I think this is a win-win situation as you can effectively hedge for CVX and at the same time earn great dividends from both stocks!