This segment is about the exchange traded fund (ETF) the United States Oil Fund (USO) and whether the “drag” inherent in this ETF means that you should avoid trading it. The tastylive take on this may surprise you.
Certain ETFs track the price of an underlying asset very closely. The problem for some is that they have an inherent “drag.” A graph of Crude Oil versus USO on a percentage change from January 2015 to present was displayed. The graph showed the underperformance of USO due to its drag in being a futures-based fund.
The USO is a futures-based fund. The fund carries a portfolio of crude oil futures as opposed to the physical product (as opposed to GLD and SLV).. Because of contango and the costs of rolling futures contracts USO underperforms /CL. A simplified explanation of the drag was explained. Occasionally, futures will be in backwardation which will give a bump to the fund.
Besides using the futures, is there a way to avoid the drag? A table of correlated products to Crude Oil were displayed. The 3 month correlation of OIH, XOP, XLE and CVX to Crude Oil (/CL) were shown.
Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista for the takeaways and other important information about trading USO (Crude Oil ETF) and understanding derivative-based drag.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.