USO or WTI futures

S

Sucat

I was wondering if using USO options is inefficient in comparison to buying WTI futures directly? Currently, I use USO for all my oil trading as I have never traded futures. But what I'm worried is that when buying USO call options that I'm overpaying. I use interactive brokers so it wouldn't be hard for me to enable futures but I wanted to know people's thoughts here on it.

For example, if I thought oil was going to $56, lets say the USO equivalent is a Call option at $12. Is there a way to buy a $56 contract in WTI for cheaper than the options market maker is going to give me on the USO? And if it is cheaper, are there other pitfalls I have to worry about like different margin or risks for buying that futures call directly?

Btw, I know all about the downfalls of USO with the front month contract and how it will likely do worse than oil in the long run so no need to warn me or talk about that.

Thanks for any hel!
 
Have you ever looked into the numbers and seen the % difference between someone trying to buy USO 3-6 months out with an out of the money call option and compared it to WTI contracts 3-6 months that are at similar WTI prices out of the money?

I know the spreads for USO options are pretty tight but I'm guessing the market makers are either making their books by hedging it with other USO options or with the actual futures. I don't care about a tiny amount of slippage but obviously I don't want to be losing a ton by being lazy.
 
Sucat said:
Have you ever looked into the numbers and seen the % difference between someone trying to buy USO 3-6 months out with an out of the money call option and compared it to WTI contracts 3-6 months that are at similar WTI prices out of the money?

I know the spreads for USO options are pretty tight but I'm guessing the market makers are either making their books by hedging it with other USO options or with the actual futures. I don't care about a tiny amount of slippage but obviously I don't want to be losing a ton by being lazy.
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I was a MM in USO options on the AMEX. It does not track well. This is 5 years of USO. Does it look like a chart of WTI?

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Yeah I am aware of the tracking problem in the long term. I'm talking more about options that are 2-3 months. For example, lets say oil is $50 and USO is $10. How would would a WTI contract 3 months out for $55 cost (10% higher) compared to buying a USO Call option at $11 3 months out? I assume its not a huge difference because then anyone would hedge it with leverage for almost risk free % gains but I wonder if its big enough for me to change how I buy exposure to oil.
 
It is not clear to me the the three month WTI will act with the font month which is more what USO is priced vs. It would be best to just look at current pricing. Get a CQG QTrader Free demo and you can see the option prices For the CL futures (They use CLE) to compare to your equity/option platfrom. Keep in mind that the WTI future is for 1000 Barrels or $1000/point.
 
Thanks. All things being equal (no contango or backwardation,i.e. flat rollover each month), the cost of a USO 12% OTM 3 months out is about 1% more than buying the WTI futures oil call. So is it a bit lazy and sloppy for me to use USO calls over WTI futures.

Appreciate the help here.
 
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