Here's the idea!

OK, it's finally become clear what needs to happen. But first a precursor:

Recall that at one point I was pimping an ETF called "USO." It's whole thing was that it was going to track the price of oil by going long on crude oil futures. Sounded awesome, so I bought in.

But after watching it, I notices how miserably it failed at its mission. To give you an idea, review my comment (and the corresponding article in seeking alpha) re: DBO (which is basically a carbon copy of USO).

It finally occurred to me - here's what I can do! I can start an ETF where I actually buy and store oil! This is what the GLD ETF does - buys and holds gold bullion. It's behaved quite nicely vs. its benchmark. Gold is of course easier to store, but really - how expensive can it be to store a few thousand barrels of oil in rural Oklahoma? If anyone happens to know - give me a holler!

But just for fun, let's see if I can figure it out:
- It'll obviously be in rural Oklahoma, where CL futures on WTI settle. I'm thinking that'll be something like $5k per month for the facility. Maybe another $5k for storage, $5k for settlement, and $5k for insurance and what-not. That's $20k/month, or $250k/year.
- Let's say this was for 100,000 barrels of oil, costing $12million, that means expenses would be 2% per year. that's not including my cut. Hmm.. that's pretty steep. Still way better than USO and DBO, but still...

Oil & natural gas - recent run up

As I'm sure yall are aware, oil is way up - so is natural gas, although not at historical highs like oil is.

From my perspective, I took it as an opportunity to reduce/adjust my exposure to oil, selling on of my Dec 2015 longs.

I've also purchased a euro (and immediately lost money on it). here's the current positions:

Description	Qty	Cost Basis	Price
CRUDE OIL DEC 2015	2	100.65	107.49
CRUDE OIL DEC 2016	2	92.12	108.08
EURO FX JUN 2009	2	1.5438	1.5335
NATURAL GAS JUN 2013	1	7.889	8.869
NATURAL GAS DEC 2013	2	8.935	9.694
S&P 500 INDEX SEP 2009	-1	1325.2	1414.2

I have to say I'm still awfully comfortable with the allocation. It's much easier to be comfortable when you're up, but still it's nice to be comfy :)

Holdin' steady

Looks like I've done pretty much what I thought I'd do since my last post - Isn't that grand, that I can hold steady on a strategy for a whole 11 days?

Oil has gone up a fair bit - My 2015's and 2016's are going for over $104 each. Unfortunately, I sold one of my 2015's for $99.60, so I made a little bit on that one, basically breaking even.

04/09/2008

Sell To Close

1

CLZ15

Crude Oil DEC 2015

99.60

This was part of the plan, as I was a little uncomfortable holding 5 longs. But obviously I would rather have the $5k I would have earned by selling it today instead of last week :)


At this point, I'm holding:
4 long term oil contracts - going for about $104.65
3 long term natural gas contracts (one in june 2013, 2 in dec 2013)
1 long on euro (June 2009)
1 short on S&P (sept 2009)

Natural gas is a very interesting one. Short term natural gas has gone way up, but long-term has gone down. It makes me think there are a bunch of gamblers out there who are spread investing, ie. shorting the long-term and going long in the short-term. They're making money now on it, but they're going to have to eventually close out those long-term contracts. For the long-term investor like myself, I think right now is a great time to buy long-term natural gas. I'm even thinking about buying one of these myself.

Also, lost almost $10k today on my S&P short since it went up almost 30+ points today. But I'm not sad, since again our 401k and what-not rose to offset. It's pretty much doing just what I'd hoped to do. In fact, this short and the long euro are basically my most comfortable investments out of our entire portfolio.

Margin Call

Well, got my first margin call. How scary indeed. Here's what happened:

As per the previous post, you'll note that the account value went up sharply and then back down. After that (around the end of March), the stock market started to go up. This is good for most, but bad for my futures account since I'm shorting the S&P. To give you an idea, each point is worth $250, so when the S&P moved from 1275 to 1375, in the last 2 weeks of March, that's a $25,000 drop. Ouch.

Couple this with a drop in oil. Not an uber big drop, but a decent sized one. It's because I still have 5 contracts in oil, representing 1,000 barrels each. Thus, the $5ish dollar fall was another $25,000.

Those two together = a margin call!

For those unaware, margin is a little different for futures than it is for stocks. In futures, you basically only buy stuff on the margin. In fact, the amount of $$ you put in is more of a down payment on what you're promising to do (ie. the future itself).

When the value of you futures has fallen, then your effective down payment shrinks, just as it effectively goes up when the value of your futures rise. If the overall value falls low enough, then the brokerage / exchanges says, "hey you don't have very much down - we need more cash asap or we're going to start closing out your positions." That's a margin call.

The funny thing is that they didn't give me a specific dollar amount. I suggested $10k, and they said, "OK." Problem was I had to scramble to get them their cash. Fortunately, Amelia wasn't working that morning and was able to buzz over to the bank to wire them some cash.

The thing is though, you really have to ask yourself if you're doing the right thing here, since the overall value of those futures can go back up, or they could continue to fall. Pretty scary.

But after I was able to get a grip, it made perfect sense to put more $$ in the account. First of all, a big chunk of it was the S&P short, which is a hedge against our 401k and the like. So it behaved perfectly, since our 401k and IRA and what-not went up during that period of time.

From the oil perspective, obviously I wish I wouldn't have bought those three Dec 2015 contracts at around $100/barrel when I could have gotten it for less than $95. But I still think $100/barrel will be very cheap in the not too distant future.

After seeing how much this oil market is bouncing up and down, I'm thinking that I'm going to try to "trade" a contract or two. That is, if it seems like the market is over-exuberant, I'll move down to 3 contracts, which will be my "long-term" state. If it seems like prices are too low, I'll add to make it 5 contracts. That last one is the risky one of course, so since I'm at 5 right now, I'll gamble a bit and sell one when prices rebound. We'll see. My worry is that this feels a little too much like gambling, and this is an awful lot of $$ to gamble with.

fun times

sorry forgot to post this - Recent transactions:

03/17/2008	Buy To Open	1	CLZ15	Crude Oil DEC 2015	100.30
03/17/2008	Buy To Open	1	NGZ11	Natural Gas DEC 2011	9.410
03/20/2008	Sell To Close	1	NGZ11	Natural Gas DEC 2011	8.760

Notice that I bought a contract, and turned around and sold it 3 days later for a hefty loss (about $6500). But I'm getting ahead of myself - here's the real story:

So I've been investing in this new thing called futures (see previous post) - and, holy shit - I'm making money hand over fist. Made like $65k or something crazy. right away too, within weeks.

Then, I decide to press my luck (see transactions above). Then everything comes crashing down, and all of the sudden I've lost all of my winnings and I'm nearing a margin call (ie. I have to put up more $$ or they'll force me to close out a position or two). So I sell one - the one I just bought a few days ago.

Turns out the past few weeks has been a roller coaster by any measure. I was reading about all the unprecedented rise and then more about his unprecedented fall in oil and natural gas and what-not. panic buying and selling is what they called it.

Needless to say, last week was quite a welcome into the futures trading market. It was fun going up, not so fun going down. Thankfully I didn't lose my shirt.

I know at this point that I'm too heavily leveraged, but I can't seem to get myself to close out some positions to reduce my risk. Here is what the current holdings are:

Description	Qty	Cost Basis	Price
CRUDE OIL DEC 2015	3	99.85	97.74
CRUDE OIL DEC 2016	2	92.12	98.2
EURO FX JUN 2009	1	1.5275	1.5259
NATURAL GAS JUN 2013	1	7.889	8.596
NATURAL GAS DEC 2013	2	8.935	8.941
S&P 500 INDEX SEP 2009	-1	1325.2	1354.4

what do you say - roll the dice and keep these holdings? Or play it safe and cash out a bunch of these?