Back On the USO Tour

So thinking of trading USO options?

Lots and lots of quirks in this pup, starting with the ETF itself that doesn’t perfectly track Texas Tea. Or specifically, West Texas Intermediate, as this chart shows. Greg and Roger know this better, but the general gist is that USO owns futures, not physical oil (unlike GLD and SLV). USO seeks to capture the magnitude move in oil, but can (and does) deviate when they roll futures.

You can borrow USO, but that will actually cost you money. Rates vary, based on your clearing firm, but the board suggest about a 4-5% annual rate right now. Subject to change at any time.

Remember an easily “borrowable” stock actual can pay you a short stock rebate if you short it, and option’s price accordinly. So thus put-call parity looks bizarro when you hit up USO. Rest assured though, it is correct. Valuation programs likely won’t account for the negative carrying cost, and will tell you puts trade fat. They don’t; the “forward” price of USO is actually below the stock. Which makes no sense intuitively when you consider oil futures now trade higher the further you go out in time (which they tell me is called contango). But this USO options pricing is purely a function of cost of carry.

Oh, and did I mention outer month volatility remains right near 52 week highs, and equal to the nearer month’s? Ordinarily that strongly suggests you want to sell calendars and trade against the long gamma that gives you. But there are so many moving parts here, tough to compare this to a regular stock.

What am I doing?

Short small (delta) vs. long metals and long energy stocks here and there. No particular volatility exposure, as I admit I have a hard time forming an opinion on that aspect of the trade.