Surely USO can't go to $0... RIGHT???

27. Apr. 2020

The title was at least my reasoning on the trade...

On April 20th, as the big news was that Oil was quickly becoming "free" I wanted to participate in this once-in-a-lifetime opportunity. My preferred instrument to trade oil has always been USO as it is an equity, optionable, and highly liquid. At the time USO was trading at 3.8. I decided to sell the 2.5 June Put Options as my trade. I reasoned that such a big fund as USO "could not go to $0" and I was OK with owning it at 2.5. I might have to wait but people are eventually going to burn off all this oil and need more in the future.

On April 21st, a day after my trade, a headline read "OIL, One Of The Largest Oil ETNs, Will Be Shut Down And Liquidated". Wow, so oil ETNs *CAN* stop trading and go to $0.

The next day April 22nd, USO announced that it would be doing a reverse 1-to-8 split. This would severely complicate my trade were I to receive fractional options and/or shares. Annoying.

Overall I am not all that worried about the prospects of this trade. I was actually given a bit of a lucky reprieve in that when I took the trade my initial order only got a partial fill. As my remaining order sat there outstanding I decided to just close the rest of it. This momentary decision of general risk aversion fortuitously kept me small; small enough to be able to sit back as an intrigued participant rather than a nervous stake holder.

As Carl Icahn said last week as he became the counterparty to the negative oil futures delivery this is a "once in-a-lifetime bargain". I think despite the FUD he is right. Despite the unique pressures of current events our modern civilization's thirst for energy has not fundamentally changed for the long term.

28. Apr. 2020

Anmerkung

Today's morning news articles were a whole new round of FUD about USO specifically. I got an email from my exchange urging me to close out my standard USO options today and then try to re-establish my position tomorrow. I'm being inundated with encouragement to get out of the trade.

I cleared up the misconceptions about margin/buying power with my exchange... I am no where close to any limit. I am still comfortable with the risk I've put on. I'm not going to be talked out of my position.

29. Apr. 2020

Anmerkung

So the split happened and... USO went UP (on balance). I recall that yesterday when I had to make a decision to close (and everyone else was supposedly closing) I noticed that the price was mostly unchanged for the day despite said pressure. That gave me more confidence to hold firm.

20. Mai 2020

Trade geschlossen: Ziel wurde erreicht

So oil (and USO) have definitely recovered from the drama. My puts are nearly fully expired so I am closing them. I am a little disappointed I did not get assigned the shares as it was my "semi-worst case scenario" but I'll take the profits and the satisfaction that I stuck to my guns despite being inundated with information trying to shake me out of my position.