USO and the price of oil

[oldtime]

hard to make money in commodities without leverage. If you have enough tp make a decent profit buying crude with cash in an etff, why not just trade the futures?

also, these energy contracts roll every month, so it can mess things up.

if you are low on cash, a better idea is to go long the options.

http://seekingalpha.com/article/123577-is-the-uso-etf-a-piece-of-junk

 

[oldtime]

let me put it to you this way, the mini contract is 500 barrels, so that's 50k. So anything less than a 50k position is hardly worth putting on. And with 50 k you can trade one lot and not have to worry about what USO is doing.

 

[FrankSlaughtery]

USO is like UNG but not nearly as bad. over long periods of time spot CL and USO do NOT track closely. the correlation might be high but the performance might not be (e.g. correlation 0.90 but USO goes up 10% and CL is up 30%).

long story short there is no way around the inherent issues such as contango, backwardation, etc. some people say "just buy longer dated futs to avoid contango" - well the futs by definition incorporate this higher price so you need spot to go ABOVE the future price - not the spot - to make money.

anyways USO is good for a short term trade at best (intraday to under 5 days) to trade the % change in spot CL but over longer periods of time you're prob going to be disappointed.

 

[oldtime]

Quote from FrankSlaughtery:

USO is like UNG but not nearly as bad. over long periods of time spot CL and USO do NOT track closely. the correlation might be high but the performance might not be (e.g. correlation 0.90 but USO goes up 10% and CL is up 30%).

long story short there is no way around the inherent issues such as contango, backwardation, etc. some people say "just buy longer dated futs to avoid contango" - well the futs by definition incorporate this higher price so you need spot to go ABOVE the future price - not the spot - to make money.

anyways USO is good for a short term trade at best (intraday to under 5 days) to trade the % change in spot CL but over longer periods of time you're prob going to be disappointed.

I agree, the point I was making is unless your position is at least 50k, the short term percentage isn't going to make much of a difference, and if you have 50k to commit you'd be better off just trading the futures.

otherwise, one of the things that got me back into trading was I wanted to get long energy, but I never could figure out a good way to do it. Don't have enough money to just go long CL, and then like USO is discovering, you can get killed on the roll. Options are good if it is moving, but you know how that goes, and very difficult to make money in commodities if it is just a cash position.

GLD is a little different, because it is actually backed up by bullion, but I know of no ETF that actually owns the oil. (also, a little easier to store gold than oil, even if it is just a piece of paper.)

 

[trade4ever2day]

Quote from FrankSlaughtery:

USO is like UNG but not nearly as bad. over long periods of time spot CL and USO do NOT track closely. the correlation might be high but the performance might not be (e.g. correlation 0.90 but USO goes up 10% and CL is up 30%).

long story short there is no way around the inherent issues such as contango, backwardation, etc. some people say "just buy longer dated futs to avoid contango" - well the futs by definition incorporate this higher price so you need spot to go ABOVE the future price - not the spot - to make money.

anyways USO is good for a short term trade at best (intraday to under 5 days) to trade the % change in spot CL but over longer periods of time you're prob going to be disappointed.

Excellent post. +

 

[trade4ever2day]

Quote from clacy:

Go to stocharts.com and set up a perfchart with:

$WTIC,USO

Then adjust it to 1-6 week periods and observe for yourself how closely USO tracks light sweet crude.

There will be some tracking error regardless, but how much tracking error you can accept is relative to you.

Thanks. If I read the chart correctly does it say that over the past 250 days, CL gained 5% but USO almost 0% in relation to one another?

 

[JayhawkTrader]

Why are shares of the ETF USO trading so low vs crude oil, compared to 2008.

Let me explain:

On September 12th of 2008 I bought 20 shares of USO for $80.00 and Crude was trading at $100.

Today USO is trading around $40 and Crude is trading back up to around $100. This means USO is trading at half what is was in 2008.

This make no sense to me. My USO shares are down 50% and Oil is trading where it was when I bought the shares of USO in 2008.

Can anyone explain this?