I bought some shares of a leveraged oil ETF a couple of weeks ago when crude oil broke below $26 per barrel. It quickly went much lower as we all know. Crap! But I stayed with it thinking it would rebound. This morning I would have been in the money, except the ETF shut down and and sold when oil was around $21. Crap! I didn't even know that was a possibility. Oh well lesson learned.
Don't do that again. Leveraged commodity ETFs are awful. They shouldn't exist.
First, the daily volatility of the leveraged ETF will eat you alive. They mark-to-market daily. If they go up and down every day, but they are the same price at the end of the month as they were at the beginning of the month, they'd still lose money. I don't want to go through the math, so trust me.
Second, the oil ETFs are horrendous unto themselves. If the price of oil did not move, you'd still lose money in these things. Why? Because the USO buys the front month futures, and rolls the contract every expiry month. Oil futures are usually in contango, as they are today. Contango means that the further the futures prices go out in time, the prices are higher. For example, the May contract is $28. The June contract is $31. The USO buys the June contract at $31. If prices don't change, it then sells that contract at expiry at $28. So the USO loses $3 even if the curve doesn't move.
If you want a leverage way to speculate in oil, buy XLE or OIH or HAL or SLB. I own OIH.
