Etfs Brent Discussion Threads

[d s patterson] 27/6/2008 08:22

no stamp duty payable on etf's perhaps you could slip that into the header bh?

[bountyhunter] 27/6/2008 00:27

ask your broker they will know

[d s patterson] 26/6/2008 20:34

yeah right I thought it would be easy to answer but rather not so it seems

[bountyhunter] 26/6/2008 20:34

good question - I don't know the answer though

[d s patterson] 26/6/2008 19:45

do you pay stamp duty on it does anyone know ? Could make all the difference with this

[d s patterson] 26/6/2008 12:37

You're right it doesn't track oil as a proxy or anywhere near it. from mid feb to now oilb went from roughly 80 to 135 whereas oil has out performed that considerably.

[d s patterson] 26/6/2008 12:22

I think you're right bh perhaps the only real way to gain 100% exposure to oil is buy a few barrels of the stuff. I wonder if anyone's been doing that.

Buying physical oil?

[bountyhunter] 17/6/2008 11:27

Hi DS - I prefer to hold oil stocks as this does not seem to fully reflect gains in crude and of course there is no divi. I'm not sure how it compares over time with buying longer term oil futures however as I've not done the maths.

[d s patterson] 17/6/2008 08:44

ttt not much interest considering the global focus on oil - you would have thought investors would be spending more time on things like this

[d s patterson] 16/6/2008 15:41

oilb outperforming oil? is that true about the 10% decay rate?

[airrage] 29/9/2007 11:02

bubble

Still missing the point I suppose; up 45%.

[steve73] 23/4/2007 18:19

Thanks for the feedback bp,
I'll check over your links later.
Sorry for the delay in getting back to this board. I've been overseas with limited i-net access.

[bubble pricker] 10/4/2007 03:24

Steve, this would work in principle. Although looking at last nights closing prices, the peak looks more like Dec 2008 to me ($70.06) and six months after that, Jun 2009 the price is just a few cents lower.

With all contango-based strategies, your risk is that the contango may not develop in the same way as it has in the past. So it is NOT a risk-free trade. Oil has traditionally traded in BACKWARDATION, and it is only been for about 2-3 years that oil has changed to contango in the early front months. So imagige someone did a trade 4 years ago betting on the backwardation staying the same, they would have lost out big time.

Another problem with the further out contracts is that they are illiquid, so spreads can be wide.

Generally, I think therefore it is better to stay with the nearer contracts for contango extraction. For example, sell Aug 2007 and buy Sep 2007. Current spread about 70c. If this widens to $2.00-2.50 come mid-July, when the Aug contract expires, you make $1.30 to $1.80.

Another strategy is to buy a long term contract behind the peak, say Dec 2009, and then continuously roll a short position. See my thread here: A Dec 09 costs 69.24 as of last night's settlement, a Jun 07 sells for 64.51. You therefore need to extract about $5 in contango over 2 1/2 years to break even. Currently, the contango runs at about $2 every MONTH, so if this continues, you will have extracted $36 by Dec 2009, less the initial $5 spread, that's $31 which is $31,000 per contract. All paid for by OILW investors ;-) Nice! As I said above, this strategy relies on the contango continuing, but then again, what is your maximum downside? If contango stopped immediately (how likely is that?) and in Dec 09, there was a first to second month backwardation of $2, your loss would be $7,000, but this is an extremely unlikely scenario. You would only need to contango to continue for about three months to make up the initial $5 spread.

Lastly, how to go about this. Open an account with a commodities broker, such as sucden.co.uk. You need to trade the full contracts on NYMEX for this strategy, as the mini contracts do not go out far enough and do not have enough liquidity. For a further out contract, you need to get a quote from the floor during NYMEX trading hours. Make sure the spread is as tight as possible. The near month contract is very liquid and can be traded at market. Also, it is not true that there is no capital outlay. There will be an initial margin of about $3,000 per open contract. As the long and short positions largely cancel each other out, there is little maintenance margin to pay.

Check out this article also:

[steve73] 06/4/2007 08:36

bp,
You are obviously well versed in the Oil markets, perhaps you could help me???

I've been thinking of doing a back to back trade to make on the contango that is currently in the market, as follows:
BUY some NYMEX oil dated (say) 18-24 months out.
SELL an equivalent value of NYMEX dated 12 months out (i.e. at the peak)
i.e. no cash outlay required, and you'll hlod more of the longer contract that you're short of the shorter one.

Then hold both through the ups and downs of the underlaying price movements, and reverse trade in 11 months(just before the 12 month contract expires).
So SELL the longer which will by then be trading at its peak, and
BUY back the immediate contract to cover the original short, making a nice handsome profit.....

What am I missing in this strategy, and how can I actually go about implementing it...?

TIA

[bubble pricker] 06/4/2007 03:35

airrage, you are still missing the point. I did admit you made a good trade.

OILB is suitable for short term trading in oil, no question about that, because the contango effect is negligible over such short periods of time. So if that's what you are doing, and within an ISA, that's great. If I were you, I would take my 30% profit now and buy back in on the next dip.

OILB is _not_ suitable as a longer term exposure to oil prices going up over the long term, as there will be a 10% loss per annum in the contango. That is the only point I am making in this thread.

[airrage] 05/4/2007 21:01

bubble

Show me another way in which I can invest in OIL movements directly in my ISA and I will listen to your recommendation and ingore your superiority complex. In the meantime, being up more than 30% within 10 weeks on a well-timed investment that has moved directly in line with the oil price and for the reasons I invested, means I can easily afford your $1.80 a month; especially as my 30% is earned tax-free.

Good-luck with all your rollovers, as you say it took you 4 months to get your order even filled and probably a lot of hassle.

To each his own, but you should at least admit that someone made a winning trade and that given that you opposed their viewpoint at the time the trade was made then maybe you could do with learning some humility?

[bubble pricker] 05/4/2007 12:25

Don't count on BP falling much even if there is a stock market correction. BP barely budged during the end Feb 07 sell-off. If and when the stock market correction comes, only the shares that have risen on the profits made from the credit boom will fall, such as banks, retail, consumer goods etc. From the stock market peak in 2000 to the through in 2003, stocks that were neglegted in 2000, such as utilities, tobacco etc, actually went UP, even though the whole market went down.

Back to oil, when you trade short term on IG Index, you suffer the same contango negative roll yield as with OILB, but that is only if you hold most of the time. If you just trade short term, the effect is negligle.

You cannot trade the long dated futures on IG, you have to go directly to NYMEX to buy a physical contract. The long contracts thrade thinly with wide spreads. Order with strict limits and insist to the broker to go to the floor with your order. Have patienc. It took me 4 months to get filled on my Dec 2012 at $62.40

By the way, I am also running a continous short roll on the near month WTI contract (covered by a long dated long), to extract $1.80 a month from guys like airrage.

Please look at my threads here:

[bubble pricker] 04/4/2007 10:12

airrage, you can gloat as much as you want. You have obviously caught a nice move up in oil prices over the past 10 weeks. The point I am making is not that you don't profit from OILB if there is a sharp move. Obviously a 30% move over 10 weeks is far greater than the loss due to contango. However, oil is not going to continue to rise at this pace, and over the long term you will lose out in OILB. Just look at the price of OILW. It is already almost $6 below the near month contract for WTI, even though OILW was incepted less than a year ago. You are losing about 10% a year in the contango, so you need oil to rise by more than 10% every year to even break even. As I said before, wait for a year, not 10 weeks, and you will see.

Paul Smith, it is diffiult to invest directly in oil, because oil does not work like a financial instrument. It is a physical commodity which requires storage space and it costs a lot of money to store. Any paper investment will somehow, one way or another reflect this (as does OILB/OILW). If you want direct exposure to oil, I would recommend longer dated futures, such as Dec 2012, but you need the financial stamina to pull through any drawdown. Otherwise, shares in oil companies are better. Their oil is stored in the ground for free. BP looks still very cheap at the moment. Candian Oil Trusts are also a good option.

[airrage] 31/3/2007 19:59

MAke that 30%. ;o)

[bingobarnes] 28/3/2007 15:40

spread betting account? Finspreads or IG Index

[bubble pricker] 27/2/2007 01:23

some people just don't want to listen. Just wait for one year and see.