Montreal, Canada

One of the best speculations now in the commodity space lies in the margin-squeezed tire manufacturing business following a blistering 74% rally in rubber prices this year. That rise follows a stunning 92% gain in 2009. Tire companies are already being hit by low margins since the onset of the credit crisis as trucking companies go under or struggle with high input costs mainly due to rising gasoline and diesel prices. Surging prices now for rubber will only increase the pain for these companies at a time when customers are pruning costs to boost earnings.

Betting against the worst-managed or struggling tire companies isn't difficult. Speculators can buy short or long-dated options or LEAPS. The problem lies with poor trading volume and weak open interest on these options. But if you can find an option with ample volume then I'd consider that to be a good speculation with some risk capital.

Commodities prices have mostly skyrocketed since hitting a bottom in February 2009 and not all companies are boosting margins despite an increase in raw material prices. Rubber is an example. Goodyear Tire and Rubber (NYSE-GT) recently announced a price increase for its stable of tires and other manufacturers have followed.

Probably one of the worst companies in the tire business is Goodyear Tire & Rubber. The company recently appointed a new CEO to fix its business model and boost growth. Goodyear is one dog of a stock; since January 1998, when it hit an all-time high, the stock has crashed 81% to $14.49 this morning. GT is rallying lately and has crossed above its 50-day moving average but in all likelihood will push lower again after this brief rally.

I like the Goodyear blimp. But I don't like the prospects for tire companies. They won't successfully pass on rising input costs indefinitely at a time when the U.S. economy is struggling to recover.