Just came across this article
http://www.indexuniverse.com/blog/5362-uso-oil-usl.html
Also in this forum I ocassionaly hear folks claiming going long in contango is a bad bet
They argue that as the front expires and you get the second contract it will show a tendency to drift towards the last spot price and that will lose you money
Lets think about what this implies, it implies there is a risk premium for shorting contangos. Historical data suggests that also but it could be easly due the fact that it HAD exist a profit for either contango or backwardation in the data, it would too unlikely that the profits would be split equally. All that could change in the future, plus contango in some commodities dont show that premium at all
The author recommends using USL intead of USO because it spreads its bets over 12 months instead of just the front. He doesnt seem to understand there would be a free $ arbitrage by long USL short USO with mininal exposure to oil
http://www.indexuniverse.com/blog/5362-uso-oil-usl.html
Also in this forum I ocassionaly hear folks claiming going long in contango is a bad bet
They argue that as the front expires and you get the second contract it will show a tendency to drift towards the last spot price and that will lose you money
Lets think about what this implies, it implies there is a risk premium for shorting contangos. Historical data suggests that also but it could be easly due the fact that it HAD exist a profit for either contango or backwardation in the data, it would too unlikely that the profits would be split equally. All that could change in the future, plus contango in some commodities dont show that premium at all
The author recommends using USL intead of USO because it spreads its bets over 12 months instead of just the front. He doesnt seem to understand there would be a free $ arbitrage by long USL short USO with mininal exposure to oil