A commodity “cannot” do something? I’d probably find a new group to hang around.
If you calculate your exposure correctly, what you plan to make or lose is no different than shorting USO. The difference the return or loss on invested capital is higher. If you are looking to bring in 500 bucks on your planned move I would rather do it with $3300 of capital rather than $10,000.
yeah this is true. We are not an energy fund so we lack the resources in this area and cannot invest/bet in this industry…having said that we as individuals can have some fun… Think i will buy some SCO sometime this week and wait. Hope the oil hits 30 or below again.
yea, I’m with you! I may regret not getting back in today. The way price came down down to break the 40 handle and then did not reject means we may start the plunge to 35 starting tomorrow! However, I do think a pullback is imminent which means if I go in today I have no idea where to put my stop. Hopefully we just sit where we are until the inventory report (10:30 Wednesdays). If it triggers a pull back I can wait for it to fail and have a nice tight stop to put in place. If it is bearish, I would like to short at 39 and put the stop in around 40.50.
Apparently, 2× etfs have hidden transaction costs approaching 5 percent. 3x even higher. A typical actively managed mutual fund is around 0.45 just for comparison, I understand the former is just a trading vehicle. Does the fact that over 5% of alpha needs to be generated just to break even cause anybody pause. This doesn’t even include your own (not fund internal) transactions costs. Not trying to rain on anybody’s parade. Just interested if this is something a short-term trader even considers. I understand the holding periods are short, but you’re usually exposed to something. Would it make more sense to short a long product than to go long an ultrashort?
Well yes, there is some slippage. Some due to the natural decay of a volatile 3x levered ETF. Some may be due to fees (although I believe that 5% over the course of a year) However, the leverage more than makes up for it. I did the math on the trade I recent made. Shorting USO would have given you a 7.5% return. The same trade being long SCO yielded 15%. You might say, hey what if the underlying is flat and the fund decays on you? No worries there, it is the volatility that causes decay. The fund will not lose money because the underlying is flat.
Wait… how did I get mixed up? SCO is actually only 2x levered. oops! :-/
Bad news is I look dumb right now. The good news is it performed really well!
Slippage would be considered a transaction cost. Decay would not. Yeah, we look at this through very different lenses. Take all kinds. If I could convince somebody I could consistently deliver 2% alpha, they would write me a ten million dollar check on the spot to manage their fund. The problem is, I could not deliver it year in and year out, much less convince somebody I could.
DNO is another way to get short exposure without leverage. Will be interesting to see how far it goes down this time as we exit the summer demand season for gasoline and the fall refinery turnaround season begins. Just as companies were starting to feel stability and add rigs back…
Maybe they should stop doing that.
Indeed
remember this…
SMH!!!
" the price of oil is done crashing , we are on the rebound and the price will continue to climb. the sate of Texas is about to go back into production mode, now is the time to start planning your mover into a career position in the oilfield…"
*ridiculous*
^ Nobody is hiring for sh*t in the oil industry right now. Based off my extremely unscientific of viewing E&P company’s careers sites, most of the small/mid cap companies have few, if any jobs posted, and if they do they’re the kind of the required jobs (HR, accounting, etc). Case and point, EOG. They are one of the best of breed companies. As of right now they have 9 jobs posted. This is a company that employs nearly 3,000 people.
Saw something today that BP is looking to sub-lease an entire building, I think Conoco has also put up a whole building for lease. I was on a flight from LA ~6 weeks ago back to Houston. The woman sitting next to me in first class and I got to talking and she said she worked in commercial real estate in Houston and commented that it’s one of the worst markets she’s seen in her time in Houston. Companies are still in survival mode.
^im sure Greenman can confirm the same. its not good for oil right now
defaults should creep up again as well. didnt seem that bad first time around
We need a recession, demand gone, oil low for long, so as to brutally force the newbie knuckleheads that shouldn’t be in this market out of business…make it so painful that creditors will think thrice about extending loans in the future.
^^^Yea, indeed… make them think “thrice” 
still waiting to read this treasure
@infinitybenzo… Are you still going short? After the report the price was volatile but it went up the to top of the downward channel and rejected nicely. I decided to have a go at it. (the oil inventory was bearish and the gasoline inventory was surprise bullish which is what drove the price up). Anyway, I bought SCO (@116.60) when CL was at 40.20. I am going to work with a very tight stop, Either this channel holds, or I’m going to bail. I will stop out if CL goes to 41. The target is 35.
Yesterday the EIS released inventory dropped 3.26mm barrels last week, most since April - does not mean much to me but oil rallied.
Look at Iran oil production…these guys are going at it. As usual i cannot paste screenshot on here. I am looking at piwoiran gp from bbg terminal…their production has increased by almost 2 folds since 2013. Canada is also pumping oil like no other…
Where do you find figures like Iran oil production?
Anyway, I obviously stopped out yesterday and now glad I did. ATM I like what I see, however. The drop from $45 was so steep. This pull back should set up a nice place to go short. I would like to see it go over $42 and then start coming down.
on the bloomberg terminal. you can view their productions levels along with rest of opec and non opec countries. I honestly don’t know much about this industry other than looking at some data on my screen but it is always fun to short especially when the price tanks.