USO
As you know, I’ve been hot and cold on trading ETFs. The reason is that they changed the rules and at times it makes it untradeable and frankly they get pissed off if we score big bucks from them. You might remember our beloved DWIT which was a product of Swiss Bank. When we screwed them really nice on a trade and took nice profits, they fired their management team and unwound the product.
The USO is an amazing instrument. It seeks to track the spot oil price of WTI. Originally it traded futures contracts and tracked pretty well until they put the kibosh on it. Often times they were 80% of the daily volume in the spot contract and that meant that their trading could bend the market and that meant that club members lost a lot of money. Again, the rule changes. They gave them accountability levels and position limits. Their broker also played a lot of games on their margin requirements and they were untradeable.
So as time went on, they added Brent futures contracts, options and SWAP contracts as in CFDs and they’re now tracking the Crude Light spot contract like a hound dog chasing an escaped prisoner from a Georgia chain gang. As you know, the advantages of trading EFTs are the fact that you’re buying a share of stock. Which means no margin calls, no position limits and you can hold the shares of stock until the cows come home. And in highly volatile markets that are difficult to trade, you can only lose what you paid for the shares of stock.
Now what makes this instrument work at the present time is the fact that the margin requirements on futures is so ridiculously high. With the margin requirement of Crude Oil futures trading around $35,000 and the fact that your broker will fuck you raw and arbitrarily raise your margin requirement citing the concentration rule, I regard oil futures as untradeable.
Now on our big trade we will be trading oil on the short side using CFDs. The risk of CFDs on the long side are too dangerous because of their extremely high degree of leverage. So we are waiting for the pop I expect on the upside which could carry oil to over $150 a barrel and do so as the markets panic because of the coming embargos and war time disruptions. But as you know, a crisis is a terrible thing to waste. People are literally losing their lives as Putin attempts to start World War III.
So what is a trader to do? The answer is, cash in big time. So I want to use ETFs to the upside and CFDs to the downside. My objective is for a $150 oil. We’re trading the USO and we are BUYING 475 shares at each average point which will cost us approximately $38,000 which would be very close to a futures margin but removing the futures risk and the fucking your broker is planning on giving you as he changes the rules to the game. You can adjust the positions by the number of shares of stock you buy according to the size of your account.
USO is currently trading around $80.25 a share which for our accounting purposes we’ll call $110 a barrel oil. We will probably add another position every $10 higher or lower basis Crude Light New York but that will vary because our slippage is around 10%. My confidence level is at 70% in this trade which in view of the volatility risk, is a reasonable loss parameter.
Oil is right smack dab on the moving average which would suggest a breakout. This close to $2 drop when you look at Brent and Crude Light New York is a nice buy point. So my specific recommendation is to BUY 475 shares of stock in the USO and to BUY another layer every $10 higher or lower basis Crude Light New York. This is a wild trade in a wild market in wild times. This is a trade in our series of trades known as the Black Mask.
Please see the disclaimer below provided by the United States Oil Fund LP trying to explain to you why this ETF should not be traded as a proxy for Crude Light futures and that’s to keep the regulators off their backs.
Purpose: Seeks to track the performance of West Texas Intermediate (WTI) light, sweet crude oil.
Investment Strategy: USO holds near-month NYMEX futures contracts on WTI crude oil.
Net Assets: $3.1 billion (as of 6/29/2021)
Expense Ratio: 0.83%
YTD Performance: 52%
Inception Date: April 10, 2006
Average Daily $ Trading Volume: $5.3 million
Disclaimer: AN INVESTMENT IN USO SHOULD NOT BE VIEWED AS AN INVESTMENT IN THE BENCHMARK OIL FUTURES CONTRACT OR LIGHT SWEET CRUDE OIL.
WHILE INVESTING IN USO INVOLVES RISKS SIMILAR TO THOSE INVOLVED WITH AN INVESTMENT DIRECTLY IN THE OIL MARKET, USO IS NOT A PROXY FOR TRADING DIRECTLY IN THE OIL MARKETS AND THESE RISKS ARE REAL.
The Benchmark Oil Futures Contract is the near month West Texas Intermediate (WTI) crude oil futures contract for light, sweet crude oil delivered to Cushing Oklahoma that is traded on the NYMEX, except that, if the near month futures contract is within two weeks of expiration, the Benchmark Oil Futures Contract will be the subsequent month contract to expire.
USO invests primarily in listed crude oil futures contracts and other oil-related contracts, and may invest in forwards and swap contracts. These investments will be collateralized by cash, cash equivalents, and US government obligations with remaining maturities of 2 years or less.