How to trade oil in Contango?

Z

Zaiga

Hey guys,
I've never traded oil and I am really unsure how to do it.
The prices are down but the Contango in the Futures is still there.
My bet is that the prices will be higher in 12 months, so what would be the best option to make a trade on this position?

Buying an ETF on Bloomberg WTI Crude Oil Subindex? But wouldn't it lose huge amounts once rolled into the next month, I doubt we will see significant increase during the next month.

But do I understand it correctly that if for example it will role from 13$ to lets say 26$ the ETF will lose half of its value - to its value today after the rolling?

The question is:
1. What to trade
2. How to calculate the loses/wins from Contango in case of ETFs base on an Index like the Bloomberg WTI.

Thank you!
 
Do a search on how many people think like this currently. The thinking on here is short oil near term until the rollovers happen then long far dated futures/options after.
Every retail trader, and most who have never traded oil seem to want to buy it currently because "it just has to go up"
 
Zaiga said:
Hey guys,
I've never traded oil and I am really unsure how to do it.
The prices are down but the Contango in the Futures is still there.
My bet is that the prices will be higher in 12 months, so what would be the best option to make a trade on this position?

Buying an ETF on Bloomberg WTI Crude Oil Subindex? But wouldn't it lose huge amounts once rolled into the next month, I doubt we will see significant increase during the next month.

But do I understand it correctly that if for example it will role from 13$ to lets say 26$ the ETF will lose half of its value - to its value today after the rolling?

The question is:
1. What to trade
2. How to calculate the loses/wins from Contango in case of ETFs base on an Index like the Bloomberg WTI.

Thank you!
More...

I think you do not realize how insanely difficult the petro complex is. There are so many factors to consider in order to make a trade because everything has an effect on price. Storage, local premium, refinery, transport, politics.

You can punt on small/microcaps because they are traded by retail for the most part. You would not want to gamble in interest rates, FX or Oil because these are the worlds most important markets and 90% of the trading is done by professionals.

"Oil is cheap so it must go up" does not work as a trade, since the first questions you have to answer are: Which Oil, which contract, which month?

So you better stay on the sidelines, watch how it plays out, write it down and learn. If you just throw a couple of bucks at it to express your oversimplified idea of a trade, you will get burned 100%.
 
Top post of the entire week here. There is so much wisdom and knowledge and respect for the market baked into this post, beginners should read it multiple times.

MrMuppet said:
I think you do not realize how insanely difficult the petro complex is. There are so many factors to consider in order to make a trade because everything has an effect on price. Storage, local premium, refinery, transport, politics.

You can punt on small/microcaps because they are traded by retail for the most part. You would not want to gamble in interest rates, FX or Oil because these are the worlds most important markets and 90% of the trading is done by professionals.

"Oil is cheap so it must go up" does not work as a trade, since the first questions you have to answer are: Which Oil, which contract, which month?

So you better stay on the sidelines, watch how it plays out, write it down and learn. If you just throw a couple of bucks at it to express your oversimplified idea of a trade, you will get burned 100%.
More...
 
Zaiga said:
Hey guys,
I've never traded oil and I am really unsure how to do it.
The prices are down but the Contango in the Futures is still there.
My bet is that the prices will be higher in 12 months, so what would be the best option to make a trade on this position?

Buying an ETF on Bloomberg WTI Crude Oil Subindex? But wouldn't it lose huge amounts once rolled into the next month, I doubt we will see significant increase during the next month.

But do I understand it correctly that if for example it will role from 13$ to lets say 26$ the ETF will lose half of its value - to its value today after the rolling?

The question is:
1. What to trade
2. How to calculate the loses/wins from Contango in case of ETFs base on an Index like the Bloomberg WTI.

Thank you!
More...


In order to earn money, you have to learn / practice very hard as if you were going for Olympics running competition.
By just running for few minutes a day wouldn't do.

You should go read up a lot first. go put lots of effort and don't just perspire sweat but blood.
 
Last edited:
Call Amerex, TFS, or Prebon and buy a Cal 21 Strip.

Zaiga said:
My bet is that the prices will be higher in 12 months, so what would be the best option to make a trade on this position?
More...
 
Buy ICE Brent futures instead of WTI CL. It's cash settled so you don't have to worry about taking delivery. Brent is also not landlocked like WTI, so it is less likely to trade negative. So Brent has much less downside than WTI. But given its significant premium to WTI ($10+) it also has less upside.
 
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