what is the best way to invest in oil?

[jy006m]

I know there's the USO ETF (or ETN or whatever), but I'm looking at the chart and it's at $30/share, from its high of $120, which makes it a 75% drop. However, a barrel of crude oil is at $50, dropping from its high of $140, which is a smaller drop percentage wise. What's going on? Why is it not exactly mirroring the percentage change? Is there a better ETF to invest in for oil?

 

[slacker921]

IIRC USO holds front month contracts.. USL is 12 month.. or something like that.. look at the difference. The "contango" killed USO.. it was having to sell cheaper (front month) contracts and roll into higher priced contracts for the next month. I think it was January where that dropped USO about 12%.

I'm hearing that the play is either DXO for daily trades (which has worked out really well for me since Dec) or getting into oil trusts that have low debt.

 

[jy006m]

hmm, DXO is also down vs Crude

http://seekingalpha.com/article/128602-not-much-bullish-momentum-in-oil?source=yahoo

 

[Met Income]

PCRIX, lots of exposure to US TIPS, though

 

[jy006m]

hmm, DXO is also down vs Crude

http://seekingalpha.com/article/128602-not-much-bullish-momentum-in-oil?source=yahoo

although could it be because of the double long?

so maybe if crude goes up it could give a greater return than crude?

 

[OptionsTrader]

Alright, listen up folks. You have to realize that DXO does not mirror the spot price of $WTIC West Texas Intermediate Crude. DXO instead has individual daily moves in which the discreet moves are twice that of $WTIC; this is only true on a per day basis, not per any other time period.

Let me give you an example of why DXO can have, say, a much different % correlation to $WTIC than 200% per timescales longer than one day.

THE PATH to a price in the future is key. How the underlying security gets to point B is vitally important.

Suppose $WTIC starts at $50 and DXO starts at $3 and ten trading days later $WTIC is $75 for a 50% gain. What will DXO be? Would you answer $6? The answer is THERE IS NOT ENOUGH INFORMATION, or that multiple choice answer E at the bottom...

There are infinite solution sets not unlike differential equations.

One solution that isn't $6:

Ten consecutive days of 4.15% up moves in $WTIC results in $WTIC of $75 and DXO of $6.66, a DXO 122% gain!

Or another solution set that doesn't result in a DXO of $6:
WTIC begins at $50 and ends at $75, and the path of the price action over ten trading days is:
10%
10%
30%
4.15%
4.15%
4.15%
4.15%
4.15%
4.15%
- 25.3%

At the end of that sequence $WTIC is $75 and DXO is only $5.51!!!!!!!

 

[MrNick]

Does anyone know if XLE or XOM is a good pick?

 

[OptionsTrader]

Does anyone know if XLE or XOM is a good pick?

XOM is a good pick in a bull market.

Too bad we ain't in one.

 

[danberkeley]

Alright, listen up folks. You have to realize that DXO does not mirror the spot price of $WTIC West Texas Intermediate Crude. DXO instead has individual daily moves in which the discreet moves are twice that of $WTIC; this is only true on a per day basis, not per any other time period.

Let me give you an example of why DXO can have, say, a much different % correlation to $WTIC than 200% per timescales longer than one day.

THE PATH to a price in the future is key. How the underlying security gets to point B is vitally important.

Suppose $WTIC starts at $50 and DXO starts at $3 and ten trading days later $WTIC is $75 for a 50% gain. What will DXO be? Would you answer $6? The answer is THERE IS NOT ENOUGH INFORMATION, or that multiple choice answer E at the bottom...

There are infinite solution sets not unlike differential equations.

One solution that isn't $6:

Ten consecutive days of 4.15% up moves in $WTIC results in $WTIC of $75 and DXO of $6.66, a DXO 122% gain!

Or another solution set that doesn't result in a DXO of $6:
WTIC begins at $50 and ends at $75, and the path of the price action over ten trading days is:
10%
10%
30%
4.15%
4.15%
4.15%
4.15%
4.15%
4.15%
- 25.3%

At the end of that sequence $WTIC is $75 and DXO is only $5.51!!!!!!!

Would you say the same about DGP?
If you were to buy something and hold it for say 1 year.
Would it makes more sense to GLD or DGP?

 

[brandon]

Would you say the same about DGP?
If you were to buy something and hold it for say 1 year.
Would it makes more sense to GLD or DGP?

The same is true about almost all leveraged ETF's.

Just read the prospectus and it will tell you how often it is compounded. Most track the "daily" movements, which causes decay.

You're much better off shorthing these ETFs than going long with them....unless you just stick to day trading.

 

[Arklatex]

Here are ways to play oil:

XLE
DKA
XES
the CANROYS like HTE

As I've stated before stay the hell away from USO.

It's a limited partnership, if you buy USO you are becoming a partner and must fill out a k-1 each year and report your earnings loss - even if you hold it in a tax sheltered account because you are a partner. Different from owning tax sheltered equity in a company.

 

[OptionsTrader]

The ETFs are what they are. Like all tools you have to understand and use them appropriately; not unlike handguns.

 

[Cowlesy]

I made big dough buying and selling UCO this year, which is double-long oil.