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I am looking at these oil ETFs and they all seem like a decent value buy. USO seems to have the largest market cap. The ETFs i have looked at are the following
USO
DBO
(now both track oil and have different ways of tracking with different fees). USO seems to have outperformed but seems like DBO is a better buy depending on whether the market is contango/backwardation
The other ETF i am looking at is IEZ
My question is
- Can these ETFs go bankrupt?
- To the which one to buy, one simple way would be to buy all 3
- Regarding the timing, might be prudent to average in (of course with the risk of missing out); of course this is almost catching a falling knife
- Selling 1 put should assign you 100 shares right?
Now another strategy could be to sell puts but not sure if there is an assignment fee for my TOS account
Update: Some of these ETFs have a 0 price to sell puts
Can you help answer these questions from other members on NexusFi?
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,057 since Dec 2013
Thanks Given: 4,409
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USO invests in prompt month futures. Every month they roll from month 1 to month 2.
USL invests in the prompt 12 month futures rate-ably. Every month they roll from month 1 to month 13.
DBO I am less sure about. It appears they invests in the prompt 12 month futures and every month they roll from month 1 to any month in the prompt 13 that they believe offers the most value.
ETFs investing in markets that are continually are in contango generally underperform futures.
ETFs investing in markets that are continually are in backwardation generally outperform futures.
@jokertrader you can trade futures. Why would you buy a tax-disadvantaged, roll yield disadvantaged, fee disadvantaged ETF?
I'm with @SMCJB on this one -- don't know if this is a continuous back adjusted chart of CL or not, but this shows the 5-year difference between CL and USO. Also, while I wouldn't expect USO to go under, ETFs have done this. I was very long XIV the day they blew up (after the cash close, it bled down 80-90% I think, from 4pm to 8pm). So, anything can happen.
Rather than averaging in, why not wait for the market to put in a bit of a floor? People buying equities down 10% thought that was the dip. Same for those buying at 20% down. Many crude buyers no doubt bought on Sunday/Monday, thinking that a 35% weekend drop was a can't miss, and that "it can't go lower." It always can. Not trying to offer trading advice, just saying that the bull thesis for crude is pretty weak. Low global demand driven by a global pandemic coupled with a price war.. buying something on sale just because it's on sale is not usually a good idea. But I'm not a crude trader these days so no doubt there are many nuances here I'm not privy to.
Thanks for the above thoughts.
After some more thought, i agree. Since we are talking strictly taking a directional view on oil (relative trades are different), my goal was to minimize risk with a low stress way of expressing a directional view on CL.
In my mind, the reason I agree to possibly trading the futures even for a longer term,low stress strategy is the following
- No risk of the ETF blowing up (even if it was USO i was considering)
- As mentioned, why hold the ETF which will underperform and have tax disadvantages
- Ability to hedge easily if i am incorrect with a reverse position
If limiting risk was another factor, i can always express this directional view by lowering my risk (spreads/flys etc)
What is to say i cannot trade a smaller duration width spread (like a 1 month) far in the future thereby eliminating roll yield loss at least for sometime and roll when the time comes
Now if i think that a sector ETF or stock (like IEZ or CCL) has been beaten up pretty badly, then thats a different trade and why maybe no easy way of expressing that with futures
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,057 since Dec 2013
Thanks Given: 4,409
Thanks Received: 10,225
Don't forget April expires Friday! Could be wild last two days.
Globex is locked limit up on the reopen. May is 2284 choice vs 2083 settle
April is 2206/2258 vs 2037 settle but will be tighter once implication switches on.