Quote:
Originally Posted by Kard63
How is oil up 10% today and USO is down 2%? I was right- oil went up, but I would have bought USO instead of futures so I would have lost. I thought they moved up and down in very close tandem with each other...?
|
Like I stated above, never invest in things you do not fully understand.
"Here are the current prices for oil contracts with expirations in the next six months. Notice how every contract is more expensive than the one that preceded it. USO follows a simple strategy of buying the current contract and then rolling into the next contract before the current one expires.
March 2009 - $40.42
April 2009 - $46.22
May 2009 - $48.88
June 2009 - $50.45
July 2009 - $51.28
August 2009 - $52.70
Source:NYMEX. Data as of 2/9/08.
Until last Friday, USO owned the March 2009 contract. Specifically, it owned 84,378 March contracts, entitling it to 84.4 million barrels of oil.
But on Friday, it sold all those contracts and bought the April contract instead. But because the April contract cost $6/barrel more than the March contract, it couldn't afford as many contracts. In fact, if you exclude new inflows into the fund, it could only buy 73,444 April contracts.
Whammo presto, the holders of USO lost 13.4% of their exposure to crude oil. They now control less oil. If the spot price stays near $40/barrel, the value of those April contracts will decay back to $40/barrel over the next month and investors will lose their shirts. If the price of oil jumps 15% in the next month—before USO rolls again into the May contract—investors will only break even."
source:
http://biz.yahoo.com/indexuniverse/0...2_id.html?.v=3