Thursday, February 19, 2009

Buyers of USO Beware

Today oil March contracts are up about 8.20%, from $34.62 to $37.70. These contracts expire tomorrow February 20. So what happens today with USO and UCO? Take a look:

USO is up 5.4% The reason is that USO just switched to April contracts.

In the process, by the way, USO sold at the March prices and bought at the April prices. So the same amount of money they had, now own fewer equivalent barrels of oil, about 20% fewer! If oil continues in contango, the same loss will happen in about 4 weeks.

So the poor investors who bought USO got to ride all the losses for the month and today do not rip the rewards.

How about UCO? That is a 2X ETF!

Buyer beware cannot be said loud enough.

Here are the contract calendars (please click to enlarge):

To avoid all these issues (you may have better chances at a casino), you may instead use straddles. We have been doing UCO straddles since UCO was at $12, which was just a few days ago.

Note: these were the 6-6 straddles published yesterday at 9:35AM at

This is currently breaking even, let's see how they do by tomorrow.

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