Here is why ETFs suck

I thought USO would be an easiest and purest non-futures play to go long oil. As you can see by the chart, USO took all of the losses this year hand-in-hand with light sweet crude, but now is severely lagging when it is time to head higher. All the risk, and half the rewards.

What a scam.

 

how is that possible?

 

It is because the futures are in contango. This means that prices continually drop as the months move forward, unless they are overpowered by a strong upmove. You would see the same pattern if you are long futures.

 

This has happened before. It's a 'known' problem.

Another reason why etf's do suck.

 

eh, ok so only way to benefit is options or some nasty oil-spot market if futures also lag behind?

 

You'd have to find a way to buy at the spot price and hold and later sell at the later spot price.

In other words, you'd have to store the oil.

If anyone can find another way, their fortune is made because you could arbitrage against the futures contango. (I am working on coming up with a way).

Goldman Sachs has a fleet of tankers around the world storing oil to take advantage of the contango.

 

ETFs suck because of credit risk and expense charges, not because their returns have to account for contango in the futures.

 

The contango is the explanation for the behavior noted by the original poster, not the factors you mention (which are minor in comparison).

 

I'm sorry friend but I will shout at you now:

1. DO YOU KNOW WHAT YOU ARE TRADING?

2. DID YOU READ THE FINE PRINT?

3. ARE YOU ONE OF THOSE "JUST CLICK ON THE SYMBOL" TRADERS WHO DO NO HOMEWORK?

Again, I'm sorry, but I get upset when people complain about things they should know better. Read carefully:

"† USO seeks to manage its portfolio such that the average daily changes in its Net Asset Value (“NAV”) over any rolling 30 day period is within 10%+/- of the average daily change in the price of the Benchmark Oil Futures Contract(s). (The Benchmark Oil Futures Contract is the near month futures contract for light, sweet crude oil. When the new month contract is within two weeks of expiration, the Benchmark Oil Futures Contract will become the next contract to expire.)"

http://www.unitedstatesoilfund.com/uso_performance.asp

USO is a fund.

 

So you are saying going long the ETF is not the best idea. What about for a short play? Or as was asked options for a long play? I mean what is the actual benefit to buying the ETF if it doesn't perform up to its full potential?