In 1980, the average annual price of gasoline in the United States rose above $1 a gallon for the first time. As a college student trying to make ends meet on very little income, the cost of filling up my Ford Maverick was starting to cut into my social budget.

That summer, I was hanging out at a friend’s house listening to Led Zepelin records and drinking beer. His father, a colonel in the U.S. Army (who would later retire as a two-star general), happened to be home that afternoon.

He overhead us griping about gasoline prices and offered his take on the subject: “You kids don’t want to be drafted into military service, but you also don’t want oil prices to go up. You can’t have it both ways.”

At that time, the United States was heavily dependent on foreign sources of oil, especially from OPEC countries. Seven years earlier, the 1973 oil crisis made clear just how vulnerable our economy was to forces outside our direct control.

The colonel concluded his lecture with this statement: “Americans don’t like to go to war, but when the price of gasoline gets up to $5 a gallon you boys will be volunteering for the Army.”

Efficiency Over Horsepower

Fortunately, the price of gasoline never rose that high. In fact, it would be another twenty-five years until the average price for US regular conventional gas exceeded $2 a gallon.

By then, this country had learned its lesson. At the same time new technologies such as fracking were making the United States less dependent on foreign oil, automobile manufacturers were starting to emphasize fuel efficiency over horsepower.

Despite those advancements, events in the Middle East over the past three weeks illustrate the degree to which our economy is affected by oil from that region. On March 9, the price of a barrel of crude oil rose above $100 for the first time since the imposition of financial sanctions on Russia after its invasion of Ukraine four years ago.

That is good news for oil producers, but bad news for just about everyone else. We are all direct and indirect consumers of energy. Not only are we paying more for gas at the pump, but so are businesses that consume petroleum in a variety of ways.

Imminent Role Reversal

Just as airlines and other large users of fuel hedge their balance sheets by purchasing futures contracts on oil, investors can do something similar to protect their portfolios. In fact, I just did that last month.

On February 12, I issued a trade alert for my PF Pro subscribers. I suggested buying a call option on APA Corp. (NSDQ: APA), an independent natural gas and crude oil producer based in Houston (a call option increases in value when the price of the underlying security goes up).

That day while APA was trading near $27, the call option that expires in January 2027 at the $25 strike price could be bought for less than $7. That made the breakeven price of this trade $32.

I did not know that the United States about to wage war on Iran. However, I did note that Wall Street had been neglecting the energy sector in favor of large cap tech stocks to the point that a role reversal may be imminent.

Also read: “War in Iran Reveals True Value of Bitcoin“

Last week, APA hit a new all-time high above $35. At the same time, the price of our call option rose to $12. That works out to a gain of 71 percent in just one month. Over the same span, the S&P 500 Index lost 2 percent.

Dependable System for Recognizing Value

At the time I issued that trade alert, one of my readers challenged my reasoning for doing so. “Why buy into the energy sector just as it appears that the economy is slowing down?”, he asked.

That is a fair question and gets to the point of this missive. Investing is not about guessing which way oil prices will turn next. It’s about having a dependable system for recognizing relative value and faithfully executing that strategy regardless of the circumstances.

I have a simple rule for managing my PF Pro options trades. Once we have doubled our money in a position, I either close it out to book the profit or put a stop order beneath it to protect most of our gain.

That’s because I have no idea which way the markets will turn next but I do know that momentum eventually fades. Right now, there is a lot of momentum behind the energy sector. But once the Strait of Hormuz reopens, gasoline prices will drop and there will be no need to send in the army to keep American consumers happy.

The colonel would be proud.