[hancial]

Excuse me if I am posting this one the wrong section.

I am hoping someone can answer this for me:

If I buy an Oil EFT like CRUD, say $1500s worth...at 19.00

...if the price drops to 16.00....languishes there....then later returns to 19.00

would I lose any portion of my initial outlay....has my EFT become worth-less just because there was a
price drop and then a subsequent price rise?

Im going on a long road trip and hoping to hedge any possible oil-price shocks.

Moderators: feel free to move as appropiate.

Thanks.

[smallpoxgirl]

{Moved by SPG}

The fund monies of USO are invested in front month crude oil futures. If the price falls and then comes back up, your investment should be more or less where it was. A few wrinkles though. 1. If you buy on margin, you can end up sold out on a margin call at the bottom and get knocked out before it recovers. 2. USO may lose value relative to oil futures because of contango. Contango means that at any given point the contract 2 months out is worth more than the contract one month out. At the end of each month, they're selling the near month and buying one farther out. That means you lose money on the contango. 3. The company that manages USO takes a small cut out of the fund, so you lose a little that way.

[sicophiliac]

{Moved by SPG}

The fund monies of USO are invested in front month crude oil futures. If the price falls and then comes back up, your investment should be more or less where it was. A few wrinkles though. 1. If you buy on margin, you can end up sold out on a margin call at the bottom and get knocked out before it recovers. 2. USO may lose value relative to oil futures because of contango. Contango means that at any given point the contract 2 months out is worth more than the contract one month out. At the end of each month, they're selling the near month and buying one farther out. That means you lose money on the contango. 3. The company that manages USO takes a small cut out of the fund, so you lose a little that way.

I have put a good some of money into OIL an exchange traded note and it does track crude futures like USO. However looking at the current price of crude vs the price of the share in the ETN its been quite disappointing. Crude is down roughly 30%(49-50 a barrel) from when I bought the shares yet the shares themselves are down close to 50% (16 now vs 29 when I bought it) I am expecting oil would have to go back up to 55-60 dollars a barrel before I would at least break even with my losses. Right now though with oil beaten down into to around 35 bucks a barrel I do think now is a good time to get in though and I have a hard time imagining it going much lower. Don't expect your gains to match 100% of the gains in crude oil prices unless oil begins to spike unexpectedly quick and in that case I think you might outperform it.

[misterno]

If I were you, I would invest in OIL options. You can choose options until 2017, I think that is a safer bet

[Revi]

I bought USO at 30 because I thought it was at the bottom, and it's now at $25. Never try to catch a falling knife. Sadder but wiser.

I am afraid of most paper investments now.

I think I'll still do okay eventually, but it isn't clear we're at the bottom of crude yet.

Maybe the stimulus will perk things up though.

[TreeFarmer]

An ETF and an ETN are not the same thing. You might want to look up the difference.

TF

[sicophiliac]

Well oil was up over 10% today and sure enough my oil futures ETN was down ! I am seriously considering cutting my losses here and pulling out of this crap. USO was down too btw.

[Revi]

USO may come up tomorrow. Hope springs eternal!

[truecougarblue]

USO is a pretty good mid to long term play at this point. Pretty straightforward with regard to holding costs. In the hypothetical presented the investor would be out the round trip commission paid the broker and the opportunity cost of lost interest on the alternative investment.

I'd hold on if I were you Revi, the USgov has one way out of this mess and that is to print money (and by print I mean electronically). Inflation or better said devaluation f the dollar is baked in the cake. The fastest place this will show up is in consumable commodities. Additionally, the credit crunch is causing tremendous amounts of oil production and transport infrastructure to be delayed or canceled. There will undoubtedly be a whiplash.

Oil ends '09 above $65.

[AirlinePilot]

Oil will be up significantly the minute the sentiment on the economy changes. Long term there is only one place for the price of oil to go and we all know where that is. Patience is the key with USO right now. It will come back. You have to trust the fundamentals.

[smallpoxgirl]

Well oil was up over 10% today and sure enough my oil futures ETN was down ! I am seriously considering cutting my losses here and pulling out of this crap. USO was down too btw.

March futures were up today likely because they're nearing expiration and short sellers are covering. USO has already rolled to April futures which were down today.

[AlanS2323]

I would be very wary of buying and holding ETFs, especially if they're leveraged. I've read enough about ETFs to know that they behave in strange ways that are counter intuitive and don't necessarily mirror the underlying index.

[AirlinePilot]

They dont mirror the index but they do follow the larger trends. Thats the key. A lot depends on your timeline and investment goals also. I use USO as a long term play and believe that its going to move up farther and faster than the traditional oil "stocks" when the crude price starts back up again.

I'm also on the losing side at the moment with one large tranch of USO at about 31 and another much smaller one around 50. I'm confident that its going to come back at some point and i dont think i have that long to wait. I'm sure that in 3-5 years we are going to see another spike due to a number of reasons we all have discussed here.

The only way crude goes lower and remains there is if China gets hit by an asteroid sometime soon.

[misterno]

"I would be very wary of buying and holding ETFs, especially if they're leveraged. I've read enough about ETFs to know that they behave in strange ways that are counter intuitive and don't necessarily mirror the underlying index."

What do you mean they are leveraged? Do you mean they borrow to invest?

[Oat]

I thought USO was supposed to be a poor performing ETF to hold while oil prices are in contango.

My understanding of oil ETF's to purchase is:
USO during Backwardation
USL during Contango
or DBO during both situations as it is actively managed.

http://shockedinvestor.blogspot.com/200 ... tango.html

[lowem]

They dont mirror the index but they do follow the larger trends. Thats the key. A lot depends on your timeline and investment goals also. I use USO as a long term play and believe that its going to move up farther and faster than the traditional oil "stocks" when the crude price starts back up again.

If you want something to move up (or heh heh, down) at twice the pace of USO, could try the 2x crude oil ETN's such as HOU.TO. For trading only though, I wouldn't want to hold on to these for too long