Discussion in 'Trading' started by datamerc, Dec 12, 2008.
thanks guys for ERX... will be watching this. what exactly is DXO?
that is simply not true !
DXO is suffering from the currently severe contango situation in the oil future market !
If oil prices stay at that level DXO will fall 20% per year.
Is every ETF (such as USO) be subject to that scenario?
what about uso?
Is it leveraged?Seems to track oil thebest,percentage wise...dollar for dollar.
DXO for example was down 7.75 vs 3.30 for oil.
the problem every ETF will have is how to get long oil.
You can either buy oil and store it in large tanks or you can buy contracts in the future market. I can't see another way to be long oil.
Currently due to the heavy contango situation (Jan 2010 oil is nearly 30% higher than Jan 2009 Oil) some clever people have been filling old ships (instead of wrecking them) with oil and sold them forward by shorting some 2010 future contract. This way they make a near risc free gain which will be much higher than the storage costs in this case.
I tried to find out for some European oil ETF about the current costs involved and phoned them but they did not want to answer this question or they could not. People in the call center did not even know what contango is.
This is NOT a problem for short term investing but it IS a problem if you want to invest in Oil in the long run.
So a simple person such as myself, can't just buy $5,000 worth of USO at $40 and then close at some future date at $60 (hopefully ) to be left with $7,500 less fees?
if you know currencys " HOU.TO ETF" from canada follows the ny crude but in canadian dollars............. just an idea
it depends on how long you will need to hold it. If oil makes af fast 50% run then you will be right with $7500 but if it takes a year or longer you simply don't know the costs involved with the ETF since you can't predict the rollover costs.
Rollover costs do not have to be negative all times, futures can also be in backwardation. In this case you gain by beeing long and rollover. But right now oil is in worst contango ever (at least from what I ever experienced).
Oh - so currently there is a cost of carry on these ETFs. Do you know how often they rollover - is this a standard time period?
I assume they will not rollover at a certain time every 3 months but they will continuesly rollover part of the contracts to get a smooth curve. At least this would make sense.
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