04-01-2020, 10:08 AM
(04-01-2020, 09:50 AM)fenders53 Wrote:(04-01-2020, 09:44 AM)Otter Wrote:I will read up. I may be the king of oil stock bears right now but obviously this oil price level works for nobody more than a few months. A quick read of your link states this is a play on short-term oil price moves, but you are buying LEAPs. Can you explain the thesis?(04-01-2020, 09:40 AM)fenders53 Wrote:(04-01-2020, 09:22 AM)Otter Wrote: Added more 1/21/22 USO 5 LEAPs this morning. USO up 0.25% while the market is down nearly 3%Can you share a paragraph about USO please. I don't know what that is but trust your instincts. I have some cash.
https://www.etf.com/USO
It is designed to track the price of West Texas Intermediate crude.
Contango is a risk, but with the price of crude where it is, I am willing to take that risk. LEAPs are cheap at the moment, so why the heck not give myself a little extra runway.
The fund buys near-term futures contracts to track the current price of WTI as closely as possible. Roll costs can be substantial when there are large fluctuations in the underlying price of WTI (difference between current spot and the cost of purchasing that next near-month future to keep the fund going). That is the main risk. If WTI is getting super-volatile around the time they are rolling their contracts, it can significantly impact fund performance.
I can envision a near-term scenario where WTI drops to $15, and likewise where it spikes to the high $20s temporarily. I can also envision a scenario where crude slowly/steadily climbs back into the $50s within 2 years (in which case USO should track along fairly steadily). The LEAPs give me optionality without the risk of getting absolutely burned on something with short-term expiry if oil goes down to $15. They should also spike nicely if crude spikes (not to the same extent as weeklies, but good enough for me).