Anyone Think Oil Is In A Bubble?

[kidgas]

Edge,
Thanks so much for the info on the oil ETFs. Rep + to you.

I was looking for something to hedge my gasoline consumption since I think that $3-4/gallon gas will return. I don't think that hybrids and eletric cars will be developed quickly enough to replace gasoline. So, I put in an order to pick up 250 shares at $2 of the DXO in my retirement account. I plan on adding more over the next several months especially if it gets near $1.

 

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[randallg99]

Anyone watching DXO or DTO?

....

I'm keeping a close eye and probably won't be able to sit on my hands if oil drops to $32/bbl and DXO is trading at less than $1/share.

I just bought initial position VNR 2 days ago at 3 cents off its 52 week low .... methinks inventory depletion is occuring much more rapidly than what most people think.

good luck to us all!

ps. just an FYI for those even considering VNR, please do your DD and note that VNR is an MLP, so there are tax consequences.

 

[randallg99]

Anyone watching DXO or DTO?

DXO is the ultra long oil ETF, it started at about $25/share back in July and has dropped to about $2/share.

DTO is the ultra short oil ETF, it also started at $25/share in July and has rocketed to about $155.

When oil reverses course, it wouldn't take much to make a quick 100% return by either buying DXO or selling short DTO.

I'm keeping a close eye and probably won't be able to sit on my hands if oil drops to $32/bbl and DXO is trading at less than $1/share.

Edge,
Thanks so much for the info on the oil ETFs. Rep + to you.

I was looking for something to hedge my gasoline consumption since I think that $3-4/gallon gas will return. I don't think that hybrids and eletric cars will be developed quickly enough to replace gasoline. So, I put in an order to pick up 250 shares at $2 of the DXO in my retirement account. I plan on adding more over the next several months especially if it gets near $1.

found something interesting... just realized that DXO is NOT AN ETF but rather an ETN.... Exchange Traded NOTE. There must be tax consequences for these if you're trading 100k or more but I don't know what they are.... lot's of oil lingo here describing the product itself.

but more importantly, from what I can deduce based on the info below that if oil drops another certain percentage (I don't know how much) then the note obligations will force it to bust and there is a very real possibility that DXO can hit zero and stay there... I am not 100% sure and I am open to others interpretations... use only your play money here folks... good luck

R

>>Crude Oil ETNs are senior unsecured obligations issued by Deutsche Bank AG, London​

Branch that are linked to a total return version of a Deutsche Bank crude oil index.<<
>>>

The Optimum
Yieldâ„¢ version of the index attempts to minimize the negative effects of contango and maximize the positive
effects of backwardation by applying fl exible roll rules to pick a new futures contract when a contract expires.
The standard version of the index, which does not attempt to minimize the negative effects of contango and
maximize the positive effects of backwardation, uses static roll rules that dictate that an expiring futures​

contract must be replaced with a contract having a pre-defi ned expiration date.<<<

 

[kidgas]

Well, my 401(k) will not be affected by any tax issues.

Edge, what is your take on DXO going bust? I am not sure that I got that scenario out of the information in the PDF. I will have to look into it further.

 

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[randallg99]

I don't want to discourage anyone from buying it if they know what they're doing... I'm only being cautious.... all of the lingo I underlined exemplifies that DXO is a note that leveraged crude futures and not stocks.... if oil drops below 32, then DXO might not have the ability (liquidity) to rollover into a future month....

I would only advise to get more clarification by calling DB and get more info on this.

 

[Edge]

Randall is absolutely right about the real possibilities of DXO going to zero. I've heard the near term $32 oil could do it and intermediate term $28 oil could do it. This is not a long term hold, this is a trade with the risk vs reward setup I salivate over.

The possibility of going to zero wasn't enough to make me turn my back on this one. The risk vs reward is just too favorable, it's like buying a call option without paying premium erosion. If you pay $2/share for it then the most you can lose is $2/share, what is the most you can gain?? I'll take it!

If going to zero keeps you up at night, you can hedge by selling naked calls on out of the money crude futures. For example, if you invest 10K in DXO at $2/share, you could sell 5k worth of premium in crude calls. If DXO gets down to $0.50/share, back up the truck with an additional 10k position in DXO and sell another $5-10k worth of crude call premium. And remember, you don't have any theta bleed on DXO, so if it just goes sideways or slowly down, you keep the crude premium and sell farther month premium after expiration.

Modify the numbers to your comfort zone, but the risk vs possible reward in combination with the probability of a bounce in between, makes this one heck of a setup in my eyes.

 

[randallg99]

the VNR position is doing nicely.... and surprisingly fast! I almost sold it the other day when it jumped 8% only to see it jump another bunch.... overall position is already up 23%!!!! man... very tempting to sell but it's still very low and I plan on adding to the position to round out a full 5%

I am now eyeing LINN.... anyone here familiar? well hedged and again its an MLP like VNR....

I have suspected oil at these levels was ridiculously low especially considering the US$

and let me tell you guys this: if you think Oil is cheap... look at nat gas... I think we're ready for an explosion kinda like a tea pot sitting on a hot stove....


On a personal note :

I don't want anyone especially here just buying whatever is mentioned on message boards by me or anyone without doing their own DD. I know the banter is only among a few of us here but I see there are thousands of views for these threads and just buying stock or positions on a whim is NOT good investing and will absolutely cost you net worth.... there are many variables that determine what I buy for my accounts such as amount of capital invested, and amounts in relation to rest of portfolio, risk tolerance, etc... it's all cliche, but it is indeed very true.... for ex: I bought SLW a couple of months ago only to have it slaughtered like a pig at a rodeo and if anyone else bought it just because I mentioned that I did, well... we'd share misery but more importantly, I have a justified reason that it fits the portfolio and I have exit strategies in place....

 

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[kidgas]

Thanks for all the info. I agree that others should be careful to do the appropriate DD. Now to the DXO position: I was filled at the open on 250 shares at 1.77. The total investment was $450.50. I go through about 300 gallons of gasoline per month. The savings that I receive from gas dropping from $4 to $1.50 is more than I would lose if DXO goes to zero. I just thought it represented a great opportunity to start hedging that portion of my life. I won't lose a bit of sleep if oil keeps dropping. However, if it does, I will have to find another hedge. I would then consider MRO or XOM, but thought DXO was a much cheaper alternative near-term.

 

[randallg99]

great call on the DXO trade, guys.... what are your strategies now that it jumped so much so fast?

kinda wish my VNR had that problem, but I'm not complaining....

 

[Edge]

great call on the DXO trade, guys.... what are your strategies now that it jumped so much so fast?

kinda wish my VNR had that problem, but I'm not complaining....

If we get a rally or a sideways day tomorrow, i'll probably get completely out of DXO. After I close out, I think i'm done with DXO unless there is an opportunity for an entry under $1.

Main reason is I am going to start playing with DIG instead, it has options so I don't get this mess of hedging with options on USO or crude futures. Just makes it much cleaner and easier to maximize margin.

 

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[randallg99]

If we get a rally or a sideways day tomorrow, i'll probably get completely out of DXO. After I close out, I think i'm done with DXO unless there is an opportunity for an entry under $1.

Main reason is I am going to start playing with DIG instead, it has options so I don't get this mess of hedging with options on USO or crude futures. Just makes it much cleaner and easier to maximize margin.

personally like the DIG/DUG trade much better.... much lower short term risk indeed.

 

[Edge]

If we get a rally or a sideways day tomorrow, i'll probably get completely out of DXO. After I close out, I think i'm done with DXO unless there is an opportunity for an entry under $1.

Main reason is I am going to start playing with DIG instead, it has options so I don't get this mess of hedging with options on USO or crude futures. Just makes it much cleaner and easier to maximize margin.

I'm keeping a mental stop at $2.38 on this one for now. I'll move that stop up if it stays strong into next week. After that, i'm doing as stated above.

 

[MJ DeMarco]

I'm kinda shocked the Israel/Gaza conflict hasn't impacted prices much.

 

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[Edge]

I'm kinda shocked the Israel/Gaza conflict hasn't impacted prices much.

I was too and I think that is why I was feeling a little trigger happy yesterday. But if you look at the chart, that was a pretty nasty downtrend, and so far the reversal has held with the 26th being the low and oil is looking pretty strong today. We didn't get the panic spike, but this might run for a little bit.

 

[randallg99]

I was too and I think that is why I was feeling a little trigger happy yesterday. But if you look at the chart, that was a pretty nasty downtrend, and so far the reversal has held with the 26th being the low and oil is looking pretty strong today. We didn't get the panic spike, but this might run for a little bit.

I agree... thus still holding VNR

the Israel/Gaza conflict seems to have started to create a little bit of panic, but not anything more than normal gyrations....

my thoughts are that traders saw the immediate condemnation of Hamas' activities from all around the world (Arab world included) that the conflict seems to be very contained...

unfortunately (for the Israeli and Gazan population alike) is the politics have overruled any sense of rationale and sanity....

 

[randallg99]

I'm kinda shocked the Israel/Gaza conflict hasn't impacted prices much.

hold them horses there fella....

ground invasion announced earlier is probably going to spike the futures

 

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[kidgas]

ground invasion announced earlier is probably going to spike the futures

I agree and gold is also likely to be a beneficiary.

 

[randallg99]

CONGRATS! to those DXO buyers sub - 2.... a nice double for ya guys....

here's the 64k question... where does oil go from here? ... quick rise gives me pause to hold and maybe selling into the strength

 

[Edge]

here's the 64k question... where does oil go from here? ... quick rise gives me pause to hold and maybe selling into the strength

Don't know where it goes from here, i'm going to take what the market gives me. If it drops or goes sideways, i'm going to look for opportunities to sell naked puts. If it shoots up, i'll probably stay away from oil for a while.

 

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[kidgas]

I ended up being concerned about the ETNs and came across an ETF that is also double long on oil. Again, the plan is to somewhat hedge against personal gasoline and energy expenses as well as trade around a likely core position. So, I sold all the DXO I picked up at 1.77 above 3 and started to get into UCO. I especially like the 20% drop that occurred yesterday. I picked up 50 shares at 13.40, 60 shares at 12.75, and put in an order for 70 shares at 11.50. I will likely begin increasing my purchases as oil trades lower.

With UCO, I have eliminated the credit risk, but I suspect there is still some risk of total loss. I just need to discover what it is.

 

[Edge]

Don't know where it goes from here, i'm going to take what the market gives me. If it drops or goes sideways, i'm going to look for opportunities to sell naked puts. If it shoots up, i'll probably stay away from oil for a while.

Couldn't sit on my hands any longer, I started selling naked puts on USO yesterday and sold more today. I'm selling January contracts, which only have 3 days left, trying to make a few quick bucks. If oil drops and i get it put to me, i'll gladly sell at the money Feb calls and lower my basis more. If it doesn't drop enough i'll keep my premium and sell Feb puts.

I don't have any fancy analysis for why I chose to do this now, I simply didn't like looking at unused cash in my account and don't see much risk at these levels. Anyone else playing oil to the long side?

 

[randallg99]

Anyone else playing oil to the long side?

I am doubling my position on VNR despite being up 100% within the past several weeks.

 

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[randallg99]

contrary to conventional wisdom to typically sell half a position, I bought more VNR despite running up over 100% ... I didn't get to double my position like I hoped due to the fast run up in the last 2 trading sessions.

a divvy was announced. it's still mid teen's income at today's closing prices...

if anyone is interested in buying ( I am not promoting the stock, but do your DD) please consider that it is an MLP and you will get K-1s and there are UBTI consequences....

Vanguard Natural Resources Declares Quarterly Distribution and Highlights Favorable Commodity Hedging Program: Financial News - Yahoo! Finance

 

[kidgas]

Purchased more UCO at 7.50 today. There seems to be a disconnect between the price of oil which is up today and UCO which is down quite a bit. Not sure what it all means. They had been tracking reasonably well.

 

[bflbob]

Anyone else playing oil to the long side?

Take a look at TSO.

It's had a pretty nice even climb since 12/1.

 

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[kidgas]

Here is an interesting article providing food for thought:

Financial Sense Storm Watch Update "Oil Rises, Oil Falls" by James J. Puplava 01/28/2009

 

[Edge]

I could use a little bump in oil prices next week. Most of my naked short puts have gone in the money. I've rolled some of them into March to avoid an exercise eating up my available capital, and i've sold quite a few calls to hedge.

All my oil options are in USO, short puts between 26 and 29, I rolled the 29s into March, all others are still Feb expiration. I've got short calls (my hedge to ease the pain) between 30 and 36, and i'll probably add more short calls next week if we don't get and stay above 26 on tuesday.

I'm planning on going the DIG/DUG route for my oil play after i'm out of the USO position. I think there is a little more juice to squeeze in those options.

I'm still long term bullish on oil, so I plan to sell puts on some type of oil vehicle for monthly income as long as we stay at these low levels.

 

[kidgas]

I've just been putzing (sp?) around with UCO buying shares when down at different levels on the way down and selling when up. My last sale was several weeks ago over 13. My main energy play was BTU which I sold out at a profit last week. Now I really don't have any exposure to energy except UCO. I am exposed to gold (GG), copper (PCU) as my main commodities right now. I was mainly surprised to see UCO down yesterday with oil up 10%.

 

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[randallg99]

I always hear people talking about the disconnect between WTI vs. gas pricing at the pump.... here's a great article to sum it up=

Crude oil is getting cheaper — so why isn't gas? - Yahoo! News

>>>Historically, West Texas International crude has cost more. So nobody bothered building the necessary pipelines to carry it beyond the nearby refineries in the Midwest, parts of Texas and a handful of other places.

Now that the premium oil is suddenly very inexpensive, refiners elsewhere can't get their hands on it.<<<<

 

[randallg99]

contrary to conventional wisdom to typically sell half a position, I bought more VNR despite running up over 100% ... I didn't get to double my position like I hoped due to the fast run up in the last 2 trading sessions.

a divvy was announced. it's still mid teen's income at today's closing prices...

if anyone is interested in buying ( I am not promoting the stock, but do your DD) please consider that it is an MLP and you will get K-1s and there are UBTI consequences....

Vanguard Natural Resources Declares Quarterly Distribution and Highlights Favorable Commodity Hedging Program: Financial News - Yahoo! Finance

I thought I would let the board know that I will be finally picking up that slug of VNR after a freefall day today.... it's down 15% +/- ... no news... probably, IMO a large seller unloading without any buyers catching it. Keeping an eye for low 8's and 7's and of course keeping an eye out for some news.

JMHO and regards-