USO Pricing Question

L

LaxFan

I'm considering selling some puts on USO 6-12 months out.

I'm trying to determine what price oil would be at if USO were 1 or 2. USO at $6 and WTI at $27, would a USO price of $1 be equal to 1/6 of 27?

Or is there no way to calculate that?

Could USO ever be liquidated if it goes too low? I'm thinking if I bought USO at $1 and it fell, could it be liquidated at 40 or 50 cents?
 
Do you really think CL will drop below 30 for long? The only country that can operate on dollar store margins is Saudi Arabia. Oil needs to be over $40/barrel for America to even think about going after our own stores. It's even worse for the oil sands people in Canada.

I'm extremely long USO in 12 months. This oil war can't go on for long without pissing off a lot of powerful nations and Coronavirus has already been priced in (the drops in december/january). I have USO pegged at $15 by january 2021. A hunch. The only thing that could possible crush that tea leaf prediction is airlines going belly up. The big tell will be summer. If most quarantines are lifted, travel will resume en masse (cheap tickets baby!) and oil should rise predictably.

To answer your other question - USO holds a basket of oil. It's possible it could be liquidated by it's managers but the drop would have to severe enough to do a lot of damage to oil as a whole.

If you took 5 minutes to read the prospectus:

Price Volatility May Possibly Cause the Total Loss of Your Investment. Futures contracts have a high degree of price variability and are subject to occasional rapid and substantial changes. Consequently, you could lose all or substantially all of your investment in USO
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Moreover, your math is a little wonky...again from the prospectus:

Daily percentage changes in USO’s NAV may not correlate with daily percentage changes in the price of the Benchmark Oil Futures Contract. It is possible that the daily percentage changes in USO’s NAV per share may not closely correlate to daily percentage changes in the price of the Benchmark Oil Futures Contract. Non-correlation may be attributable to disruptions in the market for light, sweet crude oil, the imposition of position or accountability limits by regulators or exchanges, or other extraordinary circumstances. As USO approaches or reaches position limits with respect to the Benchmark Oil Futures Contract and other Oil Futures Contracts or in view of market conditions, USO may begin investing in Other Oil-Related Investments. In addition, USO is not able to replicate exactly the changes in the price of the Benchmark Oil Futures Contract because the total return generated by USO is reduced by expenses and transaction costs, including those incurred in connection with USO’s trading activities, and increased by interest income from USO’s holdings of Treasuries (defined below). Tracking the Benchmark Oil Futures Contract requires trading of USO’s portfolio with a view to tracking the Benchmark Oil Futures Contract over time and is dependent upon the skills of USCF and its trading principals, among other factors.

Daily percentage changes in the price of the Benchmark Oil Futures Contract may not correlate with daily percentage changes in the spot price of light, sweet crude oil. The correlation between changes in prices of the Benchmark Oil Futures Contract and the spot price of crude oil may at times be only approximate. The degree of imperfection of correlation depends upon circumstances such as variations in the speculative oil market, supply of and demand for Oil Futures Contracts (including the Benchmark Oil Futures Contract) and Other Oil-Related Investments, and technical influences in oil futures trading.
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In summary KNOW WHAT YOU ARE INVESTING IN BEFORE SPECULATING.
 
That’s why I’m asking. I understand one could lose their total investment. I’m just trying to get a general idea on what price WTI would be if USO were 1 or 2. Maybe it’s not possible to determine.
 
OP looking at Jan 2021 put option expiry put prices.

what are you considering 1 contract, 10, 100?

ATM $4 put has approx $0.77 premium & if you are bullish,you win. Below $3.23 you're on the hook - how far below $3.23 is an unknown. Max risk $4 - $0.77 = $3.23.

Also consider a time decay play ... with USO floating between $3.50 - $5,what will the option be worth in September/October.

You could also do a spread - sell to open the $4 for $0.75, buy to open the $3.50 pay $0.55. In the right direction you make $0.20, in the wrong direction sub $3.50 you lose $0.30.
 
LaxFan said:
That’s why I’m asking. I understand one could lose their total investment. I’m just trying to get a general idea on what price WTI would be if USO were 1 or 2. Maybe it’s not possible to determine.
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Using YTD, both WTI & USO have dropped approx 64%

Lets take WTi at ~$20, with no further OPEC production cuts - by August WTI drops 20% to $16,USO should follow $4.22 x 80% = $3.375

Work it from there,is there a bottom,will the economy recover to get oil back up close to $30+, also consider is it possible USO could reverse split/consolidate or close up shop?

There really is no answer to your question of where oil or USO will be 6-12 mths from now.
 
never2old said:
Using YTD, both WTI & USO have dropped approx 64%

Lets take WTi at ~$20, with no further OPEC production cuts - by August WTI drops 20% to $16,USO should follow $4.22 x 80% = $3.375

Work it from there,is there a bottom,will the economy recover to get oil back up close to $30+, also consider is it possible USO could reverse split/consolidate or close up shop?

There really is no answer to your question of where oil or USO will be 6-12 mths from now.
More...

Of course there is no way to know where oil will be. You used the same rough calculation that I do to figure an approximate USO price.
 
never2old said:
@LaxFan, have you considered a oil equity play over an ETF, such as RDS-A, PSX, XOM?
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Yes, actually owned a little RDS when it was in the 50s. Sold for a tiny loss right before the big drop. Kicking myself for not nibbling when it hit 19. PSX has been on my radar for a while too, but really have no specific knowledge on what a good entry point would be for either.
 
Quite the trader you are, lol.

gaussian said:
Do you really think CL will drop below 30 for long? The only country that can operate on dollar store margins is Saudi Arabia. Oil needs to be over $40/barrel for America to even think about going after our own stores. It's even worse for the oil sands people in Canada.

I'm extremely long USO in 12 months. This oil war can't go on for long without pissing off a lot of powerful nations and Coronavirus has already been priced in (the drops in december/january). I have USO pegged at $15 by january 2021. A hunch. The only thing that could possible crush that tea leaf prediction is airlines going belly up. The big tell will be summer. If most quarantines are lifted, travel will resume en masse (cheap tickets baby!) and oil should rise predictably.

To answer your other question - USO holds a basket of oil. It's possible it could be liquidated by it's managers but the drop would have to severe enough to do a lot of damage to oil as a whole.

If you took 5 minutes to read the prospectus:



Moreover, your math is a little wonky...again from the prospectus:




In summary KNOW WHAT YOU ARE INVESTING IN BEFORE SPECULATING.
More...
 
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