Crude oil ETF securities
for your etf portfolio
Info how to invest in oil
What risks are in trading of oil etfs
Crude oil ETF is often mentioned instrument when somebody discuss how to invest in oil. But there are several oil etfs and they have their specific features. Which one is best answer to question how to invest in oil ?I like to trade Oil exchange traded funds as commodity ETFs are now heavily traded instruments. These oil exchange traded funds produce huge moves up and down as investors are trying to find direction of economy. There are also a lot of Global Macro analysis available. They discuss oil price and what are prospects of this very specific commodity in short term and long term. I read these analysis too as I develop my own
Global Macro research notes
that I use in my position trades portfolio.
How to invest in oil
Several years ago it was not easy to invest in oil. Or to trade this commodity. But situation changed.There are several crude oil etfs available today. I personally monitor three oil exchange traded funds in my watch list. There are these oil etfs : USO, DBO and OLO. Here is technical stock chart of USO
You can compare it with technical stock charts of DBO and OLO:
You can compare how charts above are related to price movements of crude oil futures traded on US futures exchanges.
When you look at the charts above you will see very important issue. All of them are NOT tracking crude oil price very well. Especially long term holding of any of exchange traded funds above in not good option.Where is the problem with these commodity exchange traded funds ? All these commodity funds are using oil futures market. They do now buy physical crude oil. But futures are contracts with limited time of life. They need to be rolled over. And it is the problematic issue. It is not so easy to sell old contract and buy one. There is often price difference and sometimes very large. It means that each roll over put some extra costs to these exchange traded funds. And it is reason why they under-perform oil price described by oil futures. The worst situation is in USO exchange traded fund. USO uses very simple technique for roll over . But this simple rolling is very costly. DBO and OLO are using different techniques. I have also notify you that OLO is not exchange traded fund but exchange traded note. And it means that it is something like bond issued by issuer of ETN. It also means little bit more risk for its long term holding.
Brent Oil Fund
There is also exchange traded fund that is designed to track price of another important crude oil benchmark - Brent oil price. The stock market ticker is BNO and is traded on US stock markets.
Ultra short oil ETF
There is also possible to speculate to drop of Oil price. As you can see on the chart above price of oil is very volatile and there are huge swings up and down. So it is possible to enter trade targeting lower oil prices.Such trade can be done by shorting of crude oil futures or shares of crude oil exchange traded funds. There is option to buy inverse exchange traded fund, which is gaining when price of oil drops. I look sometimes to SCO - UltraShort DJ-UBS Crude Oil exchange traded fund. I do not trade it heavily - I prefer to short some of titles mentioned above. Check technical stock chart of SCO:
and compare it with short term technical stock chart of crude oil futures
SCO is 2 times
leveraged ETF.
It has its own advantages and disadvantages. The main disadvantage is again that specific mathematic model driving 2 times leverage is costly and is not ideal for long term holding.There are more stock market strategies for this
commodity ETF securities
that are worth checking.
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