USO , huge discount

Quote from Rearden Metal:

<i>First off - spot futures? I'm not familiar with spot futures. I know spot markets and I know future markets. If there are spot futures, please keep me updated.</i>


-->Spot month futures= Front (closest) month.


<i>Second, look at this link

http://www.unitedstatesoilfund.com/uso_holdings.aspx
It's quite different from what you said. All they hold is sept crude.</i>

----->No, that's not correct:

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1182960>
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OK - do I understand this correctly? If the "decay" from rolling front month to next month is no more than 5% per year, do you break even.

Does this mean that when more oil is sloshing around than there is refinery capacity (maybe sooner than you think) - then the back months will trade at DISCOUNTS to the front, thereby guaranteeing profits?

Late edit - above Q assumes spot oil price does not change from month to month.
 
Quote from wabrew:

OK - do I understand this correctly? If the "decay" from rolling front month to next month is no more than 5% per year, do you break even.

Does this mean that when more oil is sloshing around than there is refinery capacity (maybe sooner than you think) - then the back months will trade at DISCOUNTS to the front, thereby guaranteeing profits?

Late edit - above Q assumes spot oil price does not change from month to month.
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Instead of describing it, I'll just show it:

http://www.manfutures.com/resources/getquotes.cfm?page=quote&sym=CLV6&mode=i
 
I don't understand why the fund doesn't hold contracts further out like lets say - 2010 or 2012 months.

Less transaction costs.
 
Quote from ImamicPH:

I don't understand why the fund doesn't hold contracts further out like lets say - 2010 or 2012 months.

Less transaction costs.
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Little volume and they don't track the front-month price very well. Yesterday, for example, Oct. crude fell but Dec. 2010 rose slightly.
 
I agree possible bottom here. Only time will tell. Here is a weekly chart of USO which shows bias to the short side. 50 day ema is $64.09, short term target. Weekly parabolic sar (stop and reverse) is $64.02. Bias still short until proven otherwise.

Only a few weeks till the election, plus upcoming OPEC meeting
may give a rebound later this week. A close above $56.00 will trigger entry, short term target $64.00. Will trade virtual portfolio
of 100 shares. For disclosure, I am long USO at $54.22. Mental stop at $40.00. If this thing goes under that, I will seriously consider buying a suburban. :(
 

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I read through the USO prospectus which is pretty long. A couple of nuggets here. First the fund like GLD will buy baskets of stock in 100,000 units. For each basket bought there will be a $1,000 fee. $9.00 per turn. Etc. The fees here seem reasonable. The prospectus says that the purpose of the fund will be to track WTI light sweet crude. They will use any and all means including options, futures, etc. The goal is to track the near term contract on the Nymex. The prospectus says that no dividends will be paid. Previous discussion aside I think that this a fair way for the retail investor to play oil. I am looking for a bottom over the next few weeks. Entry at $56.00 otherwise downward bias based on previous chart.
 
You could probably buy here for a short term scalp, but that build was HUUUGGE!! 52 week low 52.46, low for today 52.63. maybe a rebound tomorrow for a point or more blood. OPEC wild card for tommorrow. I am looking for a rebound to $56.00 to become interested.

:confused:
 
Agree on a long scalp. I don't think anyone will see a close above $56.00 until after November 7th though. Good entry after yesterdays drop. OPEC today Saudi's might not have buy in on the cut everyone knows. I am using the %2.5 loss rule or less on any position. I would not hold and let it drop to $40.00 though. China is planning ro increase their reserves buy a significant amount this will have some impact.

Akuma
 
A quick look at the USO Fund website and I see no mention of the cost of contango in their disclosures . You don't see any adjustement to NAV on contract rollover

I have traded it , was short just before the huge drop but covered way too soon- recently tried to pick a bottom but this thing is very volatile and unpredictable it tracks CL very nicely though, CL goes up a dollar, USO will go up a dollar.

there is very litle discount to NAV
 
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