USO , huge discount
- Thread starter Nasdaq5048
- Start date
Ive been trading oih all yr long I must admit it is a good trader. It is a little thin, so you need good execution or you will get hammered on your stops. There is almost always a correlation between it and crude. But not always. Obviously, you have to pay attention to earnings reports and such in its components. Pretty nice to trade some thing that is 145 dollars and can move 5 bucks a day.
I've also been trading crude, and let me say it aint easy. It's closest correlation is the gasoline future, and that is severly rigged. Late prints go up all the time. Definetly old school. However oil, when not going wacko, really respects technical levels as well.
They can both get very choppy, and they will eat you alive if you are not disciplined. So be careful.
i 2nd the motion to trade the future vs. etf. Better execution and less bs. But once again, be disciplined and use stops.
I've also been trading crude, and let me say it aint easy. It's closest correlation is the gasoline future, and that is severly rigged. Late prints go up all the time. Definetly old school. However oil, when not going wacko, really respects technical levels as well.
They can both get very choppy, and they will eat you alive if you are not disciplined. So be careful.
i 2nd the motion to trade the future vs. etf. Better execution and less bs. But once again, be disciplined and use stops.
Quote from tds551:
Ive been trading oih all yr long I must admit it is a good trader. It is a little thin, so you need good execution or you will get hammered on your stops. They can both get very choppy, and they will eat you alive if you are not disciplined. So be careful.
I trade OIS as well as OIH. Just paper traded. Entry:
OIH: Oct 2 #2contracts. 3day trade. Profit:$1780.00
OIS: Nov29 #6contracts. 1day trade. Profit: $1140.00
CVX: Nov29 #10contracts. 1day trade. Profit: $1350.00
I reached my target, thought "is this what pros mean when they say let winners run" left it in there and lost 50% profits by the 2nd day; Dec 1st-so my OIS and CVX trades would have been that profit for a 1 day trade if I exited at my target.
Letting winners run is confusing. I am thinking it is with respect to a two year chart and the overall direction of that stock?
Another product for those that want exposure to crude but for whatever reason don't want to trade futures...
ETF INVESTING: Unique ETFs Track Oil Prices Without Exposure To The Commodity
By John Spence
BOSTON (Dow Jones) -- A new type of exchange-traded fund tracks the price of oil futures without investing in the commodity itself, and this innovative structure could pave the way for similar ETFs linked to the price movements of any asset for which an index exists.
Money manager Claymore Securities Inc. and partner MacroMarkets LLC recently listed two ETFs on the American Stock Exchange. They are issued as a closely linked pair, one for bullish investors and the other for bears. Each hold short- term Treasuries and cash, and pledge to compensate each other based on changes in the settlement price of the Nymex Division light sweet crude oil futures contract.
Claymore MacroShares Oil Up Tradeable Shares (UCR) is geared to rise in value when futures prices increase. Accordingly, it's tailored for investors who want to take a long, or bullish, position on oil.
Conversely, Claymore MacroShares Oil Down Tradeable Shares (DCR) is designed to make money when the price of black gold is falling, and can also be used as a hedge.
"We're not buying oil, but because we issue shares in pairs we can generate returns by pledging assets between the matching funds," said Greg Drake, managing director at Claymore Securities, in an interview.
In other words, promising assets between the pair alters the ETFs' share prices to synthetically reflect oil's movement.
The new Claymore offerings provide a "user-friendly, widely-accessible way to get exposure to oil, which is obviously a very important part of the economy," said Yale University economics professor Robert Shiller, chief economist at MacroMarkets and the architect of the MacroShares concept.
"This is a new frontier for ETFs that allows investment in illiquid asset classes," added MacroMarkets Chief Executive Sam Masucci, noting that the firm has patented the MacroShares model. "Futures contracts aren't required with this structure," he said," which allows ETFs on anything that can be indexed."
Looking under the hood
The new Claymore offerings have complicated inner workings. When the initial up and down pairs were created, the corresponding shares were both priced at $ 60, which is about where the latest Nymex oil futures contract was recently trading. Claymore's Drake said the $60 initial price was a round number used for convenience, although the value of the securities will move based on changing oil prices.
To take an example, if the price of oil rises $3 in a day, the "down" shares pledge that amount plus any accrued income to the "up" shares. The down shares would drop in value to $57, and the up shares would rise to $63. If the price of oil drops, then the reverse would occur and the down shares would end up profiting, Drake explained.
The shares actually hold mainly short-term Treasuries, which provide a yield that's used to cover the funds' 1.6% expense ratio, and any leftover income is paid out to shareholders on a quarterly basis. The 1.6% expense ratio is very high for ETFs, which average fees of 0.43% of assets, according to investment researcher Morningstar Inc. Additionally, investors must pay broker commissions to buy and sell ETFs since they trade like stocks.
The MacroShares have a maturity of 20 years from the original offering date, but as with all ETFs investors can sell their shares throughout the trading day.
If investors hold the shares until maturity, they will receive a final distribution based on the ending value of the shares.
However, the shares can be terminated by Claymore earlier if oil prices show a big swing to the upside or downside. For example, if oil prices start at $60, the "down" shares would run out of assets if oil prices rose to $120. Put simply, assets are pledged until the well runs dry.
Yet Drake said if the shares move 85% away from their initial prices in either direction for three straight trading days, a termination is triggered. The shares then would distribute all assets back to shareholders at the end of the quarter, and Claymore would issue a new pair.
Therefore, investors in the Claymore MacroShares could lose most or all of their initial investment if oil prices move dramatically against them.
Drake said the Claymore MacroShares are created and redeemed like ETFs in blocks of 50,000 shares often called creation units.
The share blocks are created by exchange specialists and large institutions known as authorized participants. Individual shares then trade on exchanges between investors and traders, with the authorized participants charged with making orderly markets.
If there was more demand for the "up" or long shares than the down version (a bullish market for oil), Drake said the price of the MacroShares could be affected by market forces just like in the options and futures markets.
He said market makers try to balance inventory in the marketplace, but there could be premiums and discounts in the MacroShares based on significant excess demand for the up or down oil shares.
Unlike its competitors
The Claymore MacroShares are structured very differently from other oil-linked ETFs on the market such as U.S. Oil Trust (USO) , which invests in oil futures and "rolls" the contracts to maintain exposure.
Barclays Global Investors manages an "exchange-traded note" called iPath Goldman Sachs Crude Oil Total Return ETN (OIL) that uses a similar strategy. Meanwhile, PowerShares Dynamic Oil & Gas Services Portfolio (PXJ) invests in shares of publicly traded energy companies.
Commodity ETFs that use futures, such as U.S. Oil Trust, can produce either positive or negative "roll return" based on the relationship between spot prices and longer-dated futures contracts. Any capital gains are passed to investors and are taxed as 60% long-term gains and 40% short-term gains.
Sometimes, futures prices are lower than the spot price for a commodity, a condition known as "backwardation." In the opposite situation, called "contango, " investors experience a negative roll yield because futures prices are higher than spot prices.
Claymore said its MacroShares won't experience either situation because they synthetically provide exposure to oil prices by pledging assets, and don't use futures. Gross income from the Treasuries is expected to be subject to federal income taxes, with any profits treated as capital gains. Claymore said shareholders are expected to receive 1099 Forms each calendar year from their broker.
The company said it expects to work with MacroMarkets to introduce similar products based on other asset classes, but that nothing has been filed yet with regulators.
http://www.nasdaq.com/aspxcontent/N...CQDJON200612102222DOWJONESDJONLINE000349.htm&
ETF INVESTING: Unique ETFs Track Oil Prices Without Exposure To The Commodity
By John Spence
BOSTON (Dow Jones) -- A new type of exchange-traded fund tracks the price of oil futures without investing in the commodity itself, and this innovative structure could pave the way for similar ETFs linked to the price movements of any asset for which an index exists.
Money manager Claymore Securities Inc. and partner MacroMarkets LLC recently listed two ETFs on the American Stock Exchange. They are issued as a closely linked pair, one for bullish investors and the other for bears. Each hold short- term Treasuries and cash, and pledge to compensate each other based on changes in the settlement price of the Nymex Division light sweet crude oil futures contract.
Claymore MacroShares Oil Up Tradeable Shares (UCR) is geared to rise in value when futures prices increase. Accordingly, it's tailored for investors who want to take a long, or bullish, position on oil.
Conversely, Claymore MacroShares Oil Down Tradeable Shares (DCR) is designed to make money when the price of black gold is falling, and can also be used as a hedge.
"We're not buying oil, but because we issue shares in pairs we can generate returns by pledging assets between the matching funds," said Greg Drake, managing director at Claymore Securities, in an interview.
In other words, promising assets between the pair alters the ETFs' share prices to synthetically reflect oil's movement.
The new Claymore offerings provide a "user-friendly, widely-accessible way to get exposure to oil, which is obviously a very important part of the economy," said Yale University economics professor Robert Shiller, chief economist at MacroMarkets and the architect of the MacroShares concept.
"This is a new frontier for ETFs that allows investment in illiquid asset classes," added MacroMarkets Chief Executive Sam Masucci, noting that the firm has patented the MacroShares model. "Futures contracts aren't required with this structure," he said," which allows ETFs on anything that can be indexed."
Looking under the hood
The new Claymore offerings have complicated inner workings. When the initial up and down pairs were created, the corresponding shares were both priced at $ 60, which is about where the latest Nymex oil futures contract was recently trading. Claymore's Drake said the $60 initial price was a round number used for convenience, although the value of the securities will move based on changing oil prices.
To take an example, if the price of oil rises $3 in a day, the "down" shares pledge that amount plus any accrued income to the "up" shares. The down shares would drop in value to $57, and the up shares would rise to $63. If the price of oil drops, then the reverse would occur and the down shares would end up profiting, Drake explained.
The shares actually hold mainly short-term Treasuries, which provide a yield that's used to cover the funds' 1.6% expense ratio, and any leftover income is paid out to shareholders on a quarterly basis. The 1.6% expense ratio is very high for ETFs, which average fees of 0.43% of assets, according to investment researcher Morningstar Inc. Additionally, investors must pay broker commissions to buy and sell ETFs since they trade like stocks.
The MacroShares have a maturity of 20 years from the original offering date, but as with all ETFs investors can sell their shares throughout the trading day.
If investors hold the shares until maturity, they will receive a final distribution based on the ending value of the shares.
However, the shares can be terminated by Claymore earlier if oil prices show a big swing to the upside or downside. For example, if oil prices start at $60, the "down" shares would run out of assets if oil prices rose to $120. Put simply, assets are pledged until the well runs dry.
Yet Drake said if the shares move 85% away from their initial prices in either direction for three straight trading days, a termination is triggered. The shares then would distribute all assets back to shareholders at the end of the quarter, and Claymore would issue a new pair.
Therefore, investors in the Claymore MacroShares could lose most or all of their initial investment if oil prices move dramatically against them.
Drake said the Claymore MacroShares are created and redeemed like ETFs in blocks of 50,000 shares often called creation units.
The share blocks are created by exchange specialists and large institutions known as authorized participants. Individual shares then trade on exchanges between investors and traders, with the authorized participants charged with making orderly markets.
If there was more demand for the "up" or long shares than the down version (a bullish market for oil), Drake said the price of the MacroShares could be affected by market forces just like in the options and futures markets.
He said market makers try to balance inventory in the marketplace, but there could be premiums and discounts in the MacroShares based on significant excess demand for the up or down oil shares.
Unlike its competitors
The Claymore MacroShares are structured very differently from other oil-linked ETFs on the market such as U.S. Oil Trust (USO) , which invests in oil futures and "rolls" the contracts to maintain exposure.
Barclays Global Investors manages an "exchange-traded note" called iPath Goldman Sachs Crude Oil Total Return ETN (OIL) that uses a similar strategy. Meanwhile, PowerShares Dynamic Oil & Gas Services Portfolio (PXJ) invests in shares of publicly traded energy companies.
Commodity ETFs that use futures, such as U.S. Oil Trust, can produce either positive or negative "roll return" based on the relationship between spot prices and longer-dated futures contracts. Any capital gains are passed to investors and are taxed as 60% long-term gains and 40% short-term gains.
Sometimes, futures prices are lower than the spot price for a commodity, a condition known as "backwardation." In the opposite situation, called "contango, " investors experience a negative roll yield because futures prices are higher than spot prices.
Claymore said its MacroShares won't experience either situation because they synthetically provide exposure to oil prices by pledging assets, and don't use futures. Gross income from the Treasuries is expected to be subject to federal income taxes, with any profits treated as capital gains. Claymore said shareholders are expected to receive 1099 Forms each calendar year from their broker.
The company said it expects to work with MacroMarkets to introduce similar products based on other asset classes, but that nothing has been filed yet with regulators.
http://www.nasdaq.com/aspxcontent/N...CQDJON200612102222DOWJONESDJONLINE000349.htm&
Thanks for that post.
Can you explain how they were initally priced at $60 yet the range since inception has been 61.77-63.62 on the up and 56.43 -58.18 on the down.
Also with 400,000 units filed, and with just 4,000 shares trading daily, the open interest in the hands of the public has to be less than the 400,000 originally seeded. Any idea of where one can find info on open interest?
I could go for a little rally in the oil market myself, Neet, but I'm not expecting much to happen with Hussein's hanging. There were the same worries when he was convicted, but nothing came of it. And even if a bunch of insurgents wanted to do something, what would they do that they haven't already been doing for the past year?
Aaron,
I hear you, but what I like the most from this play are the technicals.
The Hussein factor, poor bastard is hanging within the hour, was just an extra bonus play.
As far what could happened, hey my friend, in the Middle East, anything is possible.
Either way, I like USO very much here.
Think crude ended the year at the same price it opened in January, at least roughly.
Stop doesnt need to be that wide but the upside is interesting.
Good luck.
I hear you, but what I like the most from this play are the technicals.
The Hussein factor, poor bastard is hanging within the hour, was just an extra bonus play.
As far what could happened, hey my friend, in the Middle East, anything is possible.
Either way, I like USO very much here.
Think crude ended the year at the same price it opened in January, at least roughly.
Stop doesnt need to be that wide but the upside is interesting.
Good luck.
Crude performance here is poor at best- esp. with the long bias typical for long weekends- is that the best they can do??
What if nothing happens over the weekend?? Will crude gap down on Wed?
Another nugget comes from the Dept of Energy (after the Nymex close), turns out that the "huge draw" in last Inventory Report was caused by some "error".
I think I'm going short USO on Wed
What if nothing happens over the weekend?? Will crude gap down on Wed?
Another nugget comes from the Dept of Energy (after the Nymex close), turns out that the "huge draw" in last Inventory Report was caused by some "error".
I think I'm going short USO on Wed