Wt Wti Crude 2x Discussion Threads

[machoolahan] 07/6/2009 16:22

Interested to see if we can spot the contango effect here and in SOIL....

[andrewbaker] 05/6/2009 20:15

Hazelton-

Forex is a problem when it goes against you? I take a view: if I think it's a tempory move, I'll hold, else I sell for the profit (loss) at the time, then buy back in when either the uptrend appears greater than the FX loss, or the FX turns back into favour. The spread and charges make it tricky, but a small profit is better than a loss. I agree, an investor deserves all he makes, and a trading one more so. You have to enjoy it, and I do.

Now I'm off for a pint ...

[andrewbaker] 05/6/2009 17:35

Leveraged ETF are for trading not holding as their construction means that the price decays over time, more so the more volatility there is; plus with commodities where contango is an issue, that will also cause price falls, and if you are buying in a currency that is falling against the £ sterling, it gets worse.

I'm in LOIL now but will get out ASA upward momentum falls or stops, and subject to the dollar exchange rate and the roll-over into the next month's future ... which I've just realised is early next week. So maybe I'm out Monday!

[d8ona] 05/6/2009 14:46

well hoo effin ray..out this am from jan at a 4% profit..bought around 50 bucks and its taken almost 70 bucks to get out at a profit due to currency moves and contango...warning do not trade this long through expiry .. in fact would advise never touching this etf at all in current contango setup

[machoolahan] 07/5/2009 02:26

Yep - hold for a few days at most - nice while it lasts, but this went to > $8 in January (when oil was lower). Very leveraged and very "lossy" - the down days will kill you - whatever the long-term position. That's over and above contango effects - which will also kill you.

That could be a lesson about the stock-market in general. Buy-and-hold is fairly subject to the gambler's fallacy (i.e. short-term gain implies long-term perspicacity - i.e. "luck"). It's completely random (that is random to you - i.e. random) - and anyone who insists otherwise is selling you something.

[blackm0nday] 06/5/2009 19:13

d8ona, agree, see my post on OIL thread.

[d8ona] 06/5/2009 17:19

anyone thinking of trading this other than for a very short term trade..dont..due to contango effect its a nightmare...there are far better ways to go long oil..i bought this in jan 09..now need about 60 buck oil to get out break even

[machoolahan] 17/4/2009 13:11

Strongly suspect nobody would want to be counterparty to that trade. Did ocuur to me as well though!

[andrewbaker] 15/4/2009 15:15

Update re shorting:

If one could short a leveraged long and at the same time an equally leveraged short oil position, I understand that over time it's a win/win situation as due to the math of leveraged ETF construction, they will always lose over the longer period regardless of the instrument itself. In other words, over time both the long and the short will be loss making, meaning a short would be profitable. You may have to cover margin calls during the holding period, and I have not looked to see who might take the trade, but it's worth looking into if that is your your type of deal.

[andrewbaker] 02/4/2009 10:27

wotabore -

People hold investments in many forms such as ISA and SIPP in the UK, and IRA in the USA for example. For reasons of tax efficiency and holding permitted investments, ETF are useful for these. If it suits, spread betting is fine. It's horses for courses.

[wotabore] 01/4/2009 10:40

so why bother with the ETF at all why not just spread bet?

liquidity?

[andrewbaker] 31/3/2009 17:17

IF one could short SOIL, falls in the oil price would mean the short would lose, as shorting SOIL is equivalent to going long crude oil.

LOIL and all leveraged ETF are not designed to hold for any period as they are 2x leveraged on the DAILY changes in price of any security. Over one day, the leverage works against whenever there is a day that ends against your position, long or short. Over time this means that even if you are right about the direction, you can lose money. Direxion have 3x leveraged ETF and state clearly that holding for more than 1 day is not recommended unless you are really really on the ball and don't mind losing your whole wedge. The average holding time for their stocks is 12 hours!

[bjed] 31/3/2009 16:02

I don't think you can short LOIL as the Market Cap is so small that no company would offer a CFD in it but you might be able to short CRUD.

An alternative idea I had is

If LOIL is such a bad long term investment compared to CRUD, is there an arbitrage (risk free profit) made up of a short £5,000 LOIL and a long £10,000 CRUD ?

[andrewbaker] 31/3/2009 11:03

bobby.ifa -

SOIL is a short oil ETF contract: CRUD is the long version, which is equivalent to shorting SOIL. (A short short is a long!)

[bobby.ifa] 31/3/2009 00:14

Andrew, on the premise you describe, is one able to short the SOIL, therefore benefitting from any further falls?

[andrewbaker] 30/3/2009 19:34

CRUD is good: LOIL is not, for a longer term hold. Do not put leveraged ETF away for investment: they are trading tools, a few days, maybe a month at best (and only if you are lucky). The leveraged loss every time they close on a down day means that even if the index/commodity/security tracked shows a gain over the period, your ETF can, and often will, lose.

I sold LOIL last week for a healthy profit, bought it back later in the week and sold today whilst it was down: my reason is that there is no reason for oil to rise right now except for speculation, and with the drop I expect this week in the S&P, Dow and Nasdaq, speculation will be dampened.

[jamesiebabie] 29/3/2009 16:05

Still not bought yet, but I think I will be shortly. The chart below shows that there is real resistance at the current level of c. 4.25, however there is support at c. 3.6. I see a pull back in the near term to 3.6 and that is where I will buy.

If/when we break the 4.25, it is off to the races again. Good luck to all.

[trickyboyfish] 23/3/2009 19:08

Thanks Andrew - That makes it far easier to understand. I'm kind of hoping for some extreme volatility in oil and the etf CRUD will at least double and then if it seems overbought, switching to SOIL. Just a thought at the moment.

Im not looking to trade it on a frequent basis if at all.

As I said before, it's in a CTF so has plenty of time to swing either way.

[andrewbaker] 23/3/2009 18:26

Trickyboyfish -

Contango is when the futures price is above that of the spot (current, buy now) price. So, when an ETF sells its current month futures contract and buys the next months with the proceeds, which is what happens in most cases where oil is concerned, it buys less (more expensive) contracts for the money, and so on and so on ... So, in time gain is eroded (or loss increased) as a result, and the ETF price will not track the oil price that well due to this cost.

[trickyboyfish] 22/3/2009 13:09

AndrewBaker - I recently opted for a self select CTF for my daughter. My sons managed funds are both performing poorly (perhaps unsurprisingly).

My first purchase was the ETF CRUD and I note your comments above on Contango costs. However even after reading up on Contango, I still dont understand. Can you explain Contango in simple terms? Thanks

[markewizaard] 18/3/2009 19:23

i think we could see silver track down to around $10....the way i understand it is that 80% of silver production is a by-product of base metal extraction,with mines/production being scaled back i think it is likely that silver could start to motor later on in the yr, demand was actually up in the last part of 2008,now though i'm not so sure?

[cbeadle] 18/3/2009 16:48

This etf has immense potential if the crude price starts to rise, which it almost certainly will sometime in the next 6-9 months. Oil is better value than Gold IMO which is showing signs of being a deflating bubble

[andrewbaker] 18/3/2009 16:43

markewizaard -

I haven't looked at gas. Silver I feel will be on the up with gold, though at the moment gold is suffering. Soft commodities: I've just come out of a short and prices are so up and down that I can't see a clear trend to go back in, loing or short.

Right now the whole market is tough: nothing seems to be doing as anticipated nor keeping with it when it does anything!

[markewizaard] 17/3/2009 20:53

ok many thanks i think iv'e found what i'm looking for....what are your views on gas i'd be intrested to know.....currently i'm researching eft's in gas,silver and soft commodities