MrRoundel

Buying USO Is a No-Brainer

I believe that you are on to something. I owned USO about 1 1/2 years ago, made a little money on a trade, then bought back in and held for a little too long, giving back my profits. I never liked the fact that USO didn't offer the same type of direct commodity connection that, say,the GLD ETF does. To me, it sounded like, in buying USO, you're making bets on the success of the gamblers. I'm not sure I like that set up.


On Dec 26 02:17 AM lookbeforeUleap wrote:

> A simple warning for all who expect to make a killing going long
> on USO. I suggest you read the USO prospectus and familiarize yourselves
> with the methodology used by USO to make the Nymex contract investments,
> and the effects of contango. As the fund manager said, even if the
> price of the current month contract stabilizes at the price the previous
> month settled at, USO investors will lose 30% each month since the
> forward month contracts are all priced at over $40. The contango
> was more than $9 at the expiration of the January delivery contract
> on 12/19/08 - so if the February deliver contract simply maintains
> the $33 price that the January contract settled at, the purchaser
> of the February contract on 12/19/08 will have a loss of $9 even
> though the February delivery contract settled at the same price as
> the January delivery contract.
>
> USO sells the current month's contract and purchases the next month's
> contract 2 weeks prior to the expiration of the current month contract
> no matter what the price of the contracts, and as long as the future
> contracts are priced higher than the current month contract, that
> amount of price appreciation will never benefit the NAV of USO.
> Why do you think their are so many shorts on USO - only a fool would
> buy USO under the present conditions. Wait until the forward month
> contract prices come down, or the current month contract price stops
> dropping so precipitously, so that the contango decreases and when
> USO rolls out of the current month contract it can buy the next month's
> contract at relativley the same price or a much smaller premium.
> Until then, USO will not benefit in price appreciation and will even
> continue to lose NAV if the current month contract price simply stabilizes.

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