Here we go again….
First, read this post for some reasoning
Some additional thoughts:
1- If successive quarters of -6% US GDP and a global recession cannot get oil to stay below $45 – $50, I’m not sure what can
2- The world IS NOT a more peaceful place
- Iraq still dangerous
- Afghanistan a mess
- Pakistan teetering
- Iran/Israel about to come to head. Netenyahu is coming to the US in May to give Obama an ultimatum (not billed that way buit it is none the less), “Take care of Iran’s nukes or we will”. Iran had vowed to destroy Israel and now may have nuclear capabilities. Only a suicidal leader would sit back and let that continue. Netenyahu lacks Europe’s infatuation with Obama and has had a lifetime of reality in the region to counter Obama’s “I know how to deal with this” mentality. He is staring a catastrophic threat in the face and if anyone thinks he can be told to “sit back and relax”, I would have to question their knowledge of the man and the region.
3- Supply
Looked like world supply is cratering, Mexico continues to run out faster than anyone expected and Canada’s tar sands are not profitable with oil at these levels.
As I said before I am not doing the DXO again for a longer term play. It is a “double” ETF which is great for trading BUT, bad for holding. The reason is that 2% of a drop > 2% of a rise. So, even the actual oil bounces around for 6 months, the DXO will lose ground to it.
So what then?
USO. It tracks the crude market.
Here is the catch. I am still anticipating a market sell off and money is not in infinite supply. So, while I want to go long USO I do not want to tie up larger sums in case we get a sell-off and bargains abound. Dilema? No.
This morning I bought Jan. 2011 $35 calls in the USO (symbol OLL AI). At the $35 price is equates to roughly $58 crude which I am rather certain will be easily lapped by 2011. By doing it this way is cost $1100 to control today, $6000 of USO, and keep money free for other uses.
It also frees me to use DXO for a short term play on occasion, which is really what it is meant for. I think I may find myself picking some up before the Obama/Netenyahu meeting later this month. I think the rhetoric coming out of that might drive oil market a bit erratic.
I think this is going to be a wild ride….
Disclosure (“none” means no position): Long USO through options, none
6 replies on “Back in Oil”
You should be careful with the oil etf’s. They don’t track the price of oil as true as they claim. It has to do with something called contango. Here’s one article that talks about it, but there are others on the internet. It recommends using USL for oil purchases. I believe DBO is handled in a similar manner. The easiest way to see it is to look at the performace of the various oil tracking funds over time.
http://shockedinvestor.blogspot.com/2009/02/tale-of-uso-usl-and-contango.htmlDrew
drew,
agree regarding contango but that is not an issue now.
in the “backwardization” scenario, USL loses at it is a 12 month etf rather than monthly
just an FYI
I used UCO but its been a loser even as oil has gone up from the low 40’s. Getting ready to sell it and buy USO.
hey todd,
While you don’t post in detail the prices in which you bought at for most of your investments, I get the feeling that you’re a fairly disciplined value investor. would you say these oil investments are mainly “value trades” and and more of an outlier of you general beliefs. Afterall etf’s are usually used for hedging among most deep value investors, considering you cant become a “business partner and owner” in an etf.
Looks like that bro really had a problem with you over that klarman video.
chris
anon,
all trades are done real time through the twitter feed. for instance in this case the oil option was done this am @ $5.50 per contract
i use twitter because:
– i will at times buy/sell before i post on it and do not want people to think i “backdate” a purchase/sale to skew results. twitter is a real-time function
– I normally will post purchase prices in the blog post, (for instance, the oil option i said was done for $1100, the total price of the options
i don’t get bothered by ANY “anon” jokester who comes here simply to bitch. 95% of those here are for constructive reasons, they are where my energies lay
yeah, i may be 20, but the twitter stuff is still something i know little about
chris