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The problem with one year futures is that they do not track the spot price of oil as well. The whole purpose of an oil ETF is for it to give you the ability to
by hristov 16y ago
The problem with one year futures is that they do not track the spot price of oil as well. The whole purpose of an oil ETF is for it to give you the ability to buy or sell a bunch of oil at any time without having to deal with the actual oil. Thus, the value of an ETF should track the current (spot) price of oil.
But if the fund buys one year contracts, their costs will not reflect the current price but what people believe the price will be at the end of the year. So the ETF will be mis-priced in relation to the current price. I think that is why they try to buy contracts that are relatively short, because they track the current price better.
- Confusion 16y agoThe whole purpose of an oil ETF is for it to give you the ability to buy or sell a bunch of oil at any time without having to deal with the actual oil. If that's the purpose, then they were flawed when conceived, because, as the article shows, the ETF´s cannot abstract from the costs involved with dealing with the actual oil.