Oil Outpacing its Own ETF

By Chris McKhann

Crude oil has pushed to new 52-week highs, but the exchange-traded fund that tracks it has not.

The U.S. Oil Fund (USO) invests in the futures, but for a number of reasons--including the need to roll those contracts--the ETF has not kept pace with its underlying asset. Thursday morning the USO was trading at $38.82, shy of the $40 level reached in June and well below prices above $60 from a year ago. The price of crude and the USO two did bottom out at roughly the same time in February, with the fund at $22.74.

The options action is looking for the fund to make up some of the difference, as we see more than 4,000 of the November 38 calls bought, most of them for $2.53. This does appear to be bullish positioning in the near term, with a price target above $40.53 to make up for the cost of the time premium of the options. But it is also possible, of course, that this is protective positioning on a short position in the fund as well.

It is amazing how much this chart looks like many of the other equity ETFs out there, as there has been tremendously strong correlation among them. This may also be a play on the thesis that, even if equities break down, crude oil will continue to climb.

Comments

[stockferret:]

You think USO is sucking? Try the LEAPS on USO. My in-the-money 35 calls for 2011 only went up $.60 when USO was up $1.30 today. USO is a pos no matter how you play it...

Oct 15 05:22 PM

[ValueInvestor:]

I've seen instances when all OJ futures traded up on the day and the calls all settled down. What the heck is going on? The CFTC should interview the settlement comity and ask whats going on.


On Oct 15 05:22 PM stockferret wrote:

> You think USO is sucking? Try the LEAPS on USO. My in-the-money
> 35 calls for 2011 only went up $.60 when USO was up $1.30 today.
> USO is a pos no matter how you play it...

Oct 16 01:33 PM

[Ron2008:]

Same thing happened to Gold puts in early Sep when Gold took off higher.


On Oct 16 01:33 PM ValueInvestor wrote:

> I've seen instances when all OJ futures traded up on the day and
> the calls all settled down. What the heck is going on? The CFTC
> should interview the settlement comity and ask whats going on.<br/>

Oct 16 10:32 PM