ucsgears

Why USO underformed CL before the crash?

NYMEX:CL1!   LIGHT CRUDE OIL FUTURES
370 6 7
2 years ago
First thing you need to understand here would be the underlying of the ETF .
Incase of USO , the underlying is "Future Contract On Wti Crude Future (contract)" THIS IS THE SOLELY THE CULPRIT. Why?

Most of Futures trader may already know this, Some etf traders may not.

Few things to understand here would be
1. Concept of Contango / Backwardation
2. Storage Cost for commodity.

Most of the Commodity has storage cost, that will get priced into the ETF , via futures contract. "Cost of Carry"

Futures in commodity are like options in stocks , but highly leveraged.

Every time the Fund managers, Bump the Contract for USO , you are inherently losing money.

Out of ALL the commodity ETF , GLD             ( IAU             )/Silver is something that carries GOLD             Bullion / Silver             (more like a GOLD/Silver backed currency).

Ironically, IAU             ( GOLD             / 100 ETF ) is possibly named after IOU. "I Owe You' 0.01 Oz Gold             / for every IAU             ETF shares. ;)

Example of GLD             / IAU             / GC             chart
snapshot
Notice How closely they trade.
a year ago
Comment: I can totally see a lot of people interested in buying Crude Oil. Remember this chart, before you do so.

Don't Let the contract cost eat your profit away. Try finding a good Micro Cap Oil Stocks. (Some Used to be Mid Caps are now in Small Caps and Micro Caps). Time your investment entry.

Good Luck
derrend
2 years ago
Is it possible to buy crude at spot price and hold it like a stock or is this not possible? I ask because I am not overly familiar with futures :)
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ucsgears PRO derrend
2 years ago
Well, If You buy June Contract, You have to take delivery of Crude Oil Barrels once the contract expires. Futures are like Options in stocks. In Options you have to request for exercise.
+1 Reply
derrend ucsgears
2 years ago
Right I see. Myself and my wife were discussing buying some oil if it goes low enough but we've never traded anything other than crypto. Sounds like I've got some research to do :)
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ucsgears PRO derrend
2 years ago
Well, USO could be a good option, if Oil can rally quicker.
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rbower ucsgears
2 years ago
Why would someone be inclined to buy CL1 rather than USO? For long-term Oil investing, would USO be a better choice?
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ucsgears PRO rbower
2 years ago
Depends on How quick the USO will move. Either way, its risky to park your money in USO for years. That would be the same for UGA / UNG. These ETFs are eaten up by the Storage costs and are never fully invested in the asset classes, Its the same if you invest in CL.. The Find managers move from one contract to another, where the do that to ease the poison. These ETFs are good for a Month or two for Trading every Swing. If you want to park, better find a different asset class. SLV / GLD.

Notice the current Contango / Backwardation in Crude, Everytime the contract jumps to next month, the prices will have a bump up / down.

snapshot
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