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If you're the USO fund manager right now you are sweating bullets. There is a massive liability mismatch here. The fund could go negative and leave the fund ma

by anonu 7y ago

If you're the USO fund manager right now you are sweating bullets. There is a massive liability mismatch here. The fund could go negative and leave the fund management company with a massive hole in its pocket and cause it to go bankrupt. I would be worried about all the other ETFs managed by USCF - as they have a high probability of going lights out as well. On the other hand, investors in USO, no matter their losses, are floored at $0. Only took an 8-standard deviation event (aka pandemic) for the unthinkable to happen.

malandrew 7y ago
If they were smart, they have one corporation per fund to shield liabilities.
- dehrmann 7y ago
  I thought this was standard practice.
- anonu 7y ago
  It depends. ETFs are held in a trust. Usually it's not one etf per trust.
delhanty 7y ago
>Only took an 8-standard deviation event I'm assuming that it's only 8-standard deviations if you assume a Gaussian distribution. Wittgenstein’s Ruler (Nassim Taleb) suggests that it's overwhelming likely that the correct distribution is more fat-tailed than Gaussian. >When someone tells you it was a 10 sigma event, meaning it is 10 standard deviations and it is Gaussian; unless the information came from God, you can reject the Gaussian distribution for that domain. We show the derivations. https://nassimtaleb.org/2019/07/wittgensteins-ruler/ https://nassimtaleb.org/2019/07/wittgensteins-ruler/
- anonu 7y ago
  This is a very common response to any comment about standard deviations and the market. Turns out gaussian modeling is very easy to understand and to use in most cases. If you're trading intraday, that kind of model is probably fine and a great way to build a baseline. If you're changing your time horizon to days or months of years, then something other than gaussian could be of service. IMHO
juped 7y ago
You don't "invest in USO" with the expectation of returns. You trade USO or derivatives with the expectation that its price will track movements in oil. Has USO failed to track movements in oil? Will it?
- anonu 7y ago
  That's right. USO is a derivative on a derivative on commodity that nobody wants right now. The amount of indirection to get from USO to crude would tell me yes, it's failed to reach its stated goal.
  - juped 7y ago
    What? The price of oil has fallen sharply. USO has fallen sharply. This is what USO is supposed to do. The service USO is providing is giving traders a symbol they can use to be directionally exposed to oil without personally maintaining a tricky futures position.

by anonu 7y ago

malandrew 7y ago

If they were smart, they have one corporation per fund to shield liabilities.

dehrmann 7y ago
I thought this was standard practice.
anonu 7y ago
It depends. ETFs are held in a trust. Usually it's not one etf per trust.

delhanty 7y ago

>Only took an 8-standard deviation event I'm assuming that it's only 8-standard deviations if you assume a Gaussian distribution. Wittgenstein’s Ruler (Nassim Taleb) suggests that it's overwhelming likely that the correct distribution is more fat-tailed than Gaussian. >When someone tells you it was a 10 sigma event, meaning it is 10 standard deviations and it is Gaussian; unless the information came from God, you can reject the Gaussian distribution for that domain. We show the derivations. https://nassimtaleb.org/2019/07/wittgensteins-ruler/ https://nassimtaleb.org/2019/07/wittgensteins-ruler/

anonu 7y ago
This is a very common response to any comment about standard deviations and the market. Turns out gaussian modeling is very easy to understand and to use in most cases. If you're trading intraday, that kind of model is probably fine and a great way to build a baseline. If you're changing your time horizon to days or months of years, then something other than gaussian could be of service. IMHO

juped 7y ago

You don't "invest in USO" with the expectation of returns. You trade USO or derivatives with the expectation that its price will track movements in oil. Has USO failed to track movements in oil? Will it?

anonu 7y ago
That's right. USO is a derivative on a derivative on commodity that nobody wants right now. The amount of indirection to get from USO to crude would tell me yes, it's failed to reach its stated goal.
- juped 7y ago
  What? The price of oil has fallen sharply. USO has fallen sharply. This is what USO is supposed to do. The service USO is providing is giving traders a symbol they can use to be directionally exposed to oil without personally maintaining a tricky futures position.