Small-cap, low-priced oil stocks are known as oil penny stocks. The draw to oil penny stocks is pretty basic. You can buy them for cheap and with promises of large profits. While profiting from oil and gas penny stocks is possible when you know what you’re doing, too many investors enter the penny stock arena with little to no knowledge of what they’re doing.

What Are Oil Penny Stocks?

Rising with inflation, you will rarely, if ever, find an oil penny stock that truly costs a penny. The Securities and Exchange Commission (SEC) now considers oil penny stocks to be anything less than $5.

Most individual traders consider oil penny stocks to be Wall Street’s Wild West, providing an opportunity to invest away from the glitz, glamour, and media coverage that comes with trading stocks on major exchanges. While profits and losses in the oil penny stock world can be impressive, they are seldom heard of elsewhere.

Important Oil Penny Stocks Definition

In addition to trading at under $5 a share, there are other investing elements that are important to understand when buying and selling oil penny stocks.

  • Highly speculative: Oil penny stocks have a high-risk, high-reward balance. If your stock does good, there is a good chance you will make excellent returns.
  • Small-cap: Oil penny stocks are usually connected to small-capitalization companies that have a lower stock valuation, generally under $2 billion.
  • Large bid-ask spread: Oil penny stocks often have a significant difference between their asking price and their bid price. This means the price someone is willing to pay to buy the oil penny stock is significantly more than the price someone is willing to sell at.
  • Pink-Sheet Stocks: A listing service for stocks trading via over-the-counter (OTC), or not found on major exchanges such as NASDAQ and the New York Stock Exchange. These are usually penny stocks selling for less than $5 per share.

How Do I Get Started With Oil Penny Stocks?

The best way to start trading oil penny stocks is to locate a broke and become educated on the market. With oil penny stocks being so cheap, it’s not always profitable to utilize the services of a live broker. Many investors connect with an online broker that allows them to make trades on their own.

Learn the jargon and language, the kinds of companies that trade in the over-the-counter (OTC) market, and any information available about companies that fall into the micro- and mid-cap range. Due to the volatility of oil penny stocks, don’t go into this type of investing blindly. Identify what strategy you will be using and establish specific goals before you start trading.

Remember, oil penny stock trading is about generating returns quickly. These are not stocks you are holding onto for months or years. You are trading them daily to build your portfolio and increase your profits.

Developing Your Oil Penny Stock Strategy

As an investor of any kind, it’s important to create a sound investing strategy with many experts suggesting you have several investment strategies that work for you. Many new investors get into trouble quickly because they don’t have a plan or strategy laid out. They may have located excellent oil penny stocks but didn’t know the right time to exit, or made emotional trades instead of strategically thinking them through. Be careful not to fall into traps like this and follow these tips for developing a solid oil penny stock strategy:

  • Prepare for Risk: It’s important to recognize that you will be putting money on the line when you invest in oil penny stocks. Sometime you will lose money, and when you do, it’s important to learn from any mistakes so you can move forward.
  • Assess Your Investing Needs: Identify the reason you are investing in oil and energy penny stocks. What factors are driving you? Knowing your goals and needs help you invest more strategically.
  • Invest Only What You Can Lose: It’s important to remember that no investment is without risk. There is never a guarantee that an investment will result in a profit. Investing money you aren’t prepared to lose is never a good idea.
  • Find Guidance: Surround yourself with a knowledgeable network of individuals that can help you learn how to locate good oil penny stocks and provide feedback on trades you make.
  • Let the Trades Come to You: Trading as a result of an itchy clicking finger very seldom produces positive results. Be patient and wait, finding a good oil penny stock that comes to you and only making the trade if it makes logical sense.

Oil Penny Stocks Advantages and Disadvantages

Investments contain a certain amount of risk. When you are investing money you have no guarantee, you’ll get that money back. For many traders, the risks of investing add to the thrill of the game. It’s important though to understand the advantages and disadvantages of oil penny stock trading. Benefits of investing in oil penny stocks include:

  • Low Capital Investment
    With oil penny stocks costing less than $5, traders don’t need to be rich to start investing. Oil penny stocks can be a viable option for individuals looking to add value, gain experience, and diversify their portfolio without investing large amounts of money.
  • Diversification
    Having a diversified portfolio is crucial as it allows wins to make up for losses, helping protect your net worth. Since oil penny stocks don’t cost a lot per share, investors can diversify their portfolio more effectively.
  • Fast Movement
    Oil penny stocks charts and graphs show rapid fluctuations, allowing investors the opportunity to make quick decisions to ride it out or quickly get out. Many times the price of an oil penny stock share can double overnight. Getting out quickly can result in a 50% profit of your original investment while you slept.
  • Potential Ascension
    Occasionally a micro-cap stock can quickly ascend to a mid-cap stock level resulting in several hundred percent returns on your investment. This can vastly improve an investor’s wealth, allowing them in the future to trade more aggressively with their additional capital.

Before dumping thousands of dollars into companies they’ve never heard of simply due to a cheap stock price, investors also need to consider these disadvantages associated with investing in oil penny stocks:

  • Investing With Minimal Available Information
    Unlike stocks that are traded on major security exchanges, micro-cap stocks, including oil penny stocks, aren’t SEC regulated. This means companies aren’t required to submit copious documents to meet SEC standards and increases the importance of doing your research.
  • Investing With No Minimum Standards
    With no minimum standard requirements for OTC oil penny stocks, investors are flying blind in terms of P&L reports, balance sheets, and other documentation. Many times when companies fall off major stock exchanges and move into the Pink Sheets, it’s an indication of financial failure.
  • Investing With Lack of History
    Investors may also encounter situations where a company doesn’t have any trading history.
    This may be because they are a new company, or it may be because they are heading towards bankruptcy.
  • Investing Without Liquidity
    Many investors avoid oil penny stocks because of their lack of liquidity, meaning while they may find oil penny stocks to buy, they may struggle to find sellers to unload them to in the future.

Hot Oil Penny Stocks

The gas and oil industry includes companies involved in the marketing, transporting, refining, extraction, and exploration of gas and oil products. Here’s a list of some of the best oil penny stock companies right now:

  • Delta Oil & Gas Inc. (DLTA)
    The goal of this oil and natural gas company is to acquire, develop, and produce natural gas liquids and crude oil at its locations in the U.S. and Canada. It’s primary U.S. projects include Texas counties Jim Wells and Newton, while DLTA owns and operates numerous Alberta, Canada projects.
  • Advantage Oil and Gas (AAV)
    These profitable oil penny stocks come from a company owning oil and natural gas exploration rights in the provinces of Saskatchewan and Alberta in Canada. It doesn’t directly sell its natural gas and crude oil liquids instead, employing a marketing company.
  • Transatlantic Petroleum Ltd. (TAT)
    A Texas-based company offering top oil penny stocks, TAT is involved in the production, exploration, and acquisition of gas and crude oil, mainly at its oversea locations in Bulgaria, Turkey, and Albania. They have their own oil drilling equipment while providing consulting services and equipment rentals to third parties.

Some oil penny stocks for companies found on pink sheets and the over-the-counter bulletin board (OTCBB) may be of good quality, with some companies even working hard to establish themselves enough to make their way onto more reputable exchanges like the NYSE and NASDAQ. While oil penny stocks aren’t a lost cause, they do bring with them higher-risk investments not suitable for all traders. If the lure of micro caps is too much to overcome, take time to complete extensive research to understand what you are getting into completely.

For more investment tips, including how to use options to double or triple your investment account, download Jeff Bishop’s “Option Profit Accelerator” eBook.

Jeff Williams

Jeff Williams is a full-time day trader with over 15 years experience. Thousands of entry-level and experienced traders alike – day-traders and swing-trade small cap stock traders – credit Jeff with guiding them to turning small accounts into big accounts.

Jeff’s "Small Account Challenge" shows people how to transform accounts from a few thousand dollars into $25k, $50k or even $100k.

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