Why I Might Put $100,000 In USO in May 2020

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Today I talk about why I might potentially put $100,000 in ticker USO. Tons of people have bought into USO the past couple weeks because oil prices have fallen massively. People think investing in USO the United States oil Fund is a direct play on oil prices going up in the future, but it is not that… it is much more complicated.

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Well guys here today I’m gonna do a video that is going to be super, super helpful to a ton of individuals out there. It’s gonna save a lot of people a lot of money and can potentially make some people some money. Okay, so I hope you really enjoy this video here today we are talking about us, okay?

And we’re just gonna call this thing for right now. Okay, it’s $2.64. And we’re just going to call it a faith, it’s ticker symbol is u s. Okay? So what I want to do in this video here today, I want to explain to you what this is. So many people have no clue what this is.

And there’s massive amounts of people investing into uso and they don’t even like understand what the heck uso is. Okay, so I want to go ahead and explain what it is. We’re going to talk about some mistakes that have been made by a lot of individuals out there in this one very recently.

And it’s a it’s one that could definitely trap a lot of people. It’s a tricky one. Okay. It’s not the easiest subject, I’m explained today. Let’s put it that way. Okay. And the third thing we’re going to talk about is why I might put $100,000 into uso in the month of May and I want to explain to you in detail what needs to happen for me to put $100,000 into us Okay, so hope you guys really enjoy this is a very valuable video smash that thumbs up button.

The goal today is 7777 thumbs up. Okay, I love the sevens. You know, I live in Vegas. Okay, yesterday, we didn’t hit the goal. We hit 5300 yesterday. Hey, the past is the past Today’s a new day. I think you guys can hit 7777. So let’s go ahead and start getting in it.

Okay, so first off, I’ve heard a lot of people calling us a stock. They’re like, Oh, I’m gonna buy uso stock. Okay, let me be very clear. uso is not a stock, okay? uso is not a stock, okay? Chevron Corporation is a stock, okay? A stock is something that essentially represents ownership in a company that has earnings.

Okay, a company that has revenues and earnings per share and has a balance sheet behind them. And they and they have employees and they’re doing business okay? That is a stock okay? When you say I’m gonna buy some Amazon stock you’re buying basically part ownership in Amazon Corporation.

That is not us. Oh, okay. uso has no income statement. uso has no balance sheet uso doesn’t have employees or anything like that. That is not us. Okay, that’s not what uso is doing. Okay. And let me also tell you what uso isn’t uso is not a perfect price tracker. So some people are thinking they’re going to buy into uso kind of like they would buy into an index fund like a fidelity 500 index fund.

Right? Essentially, imagine you believe the markets undervalued, you believe the s&p 500 is gonna be much higher in three years from now or five years from now or 10 years now than it is today. And you have some money sitting around you like, Hey, you know what, I don’t want to individually stock pic.

I’m just gonna put my money index fund, okay, you put your money in a fidelity 500 index fund and essentially, your money’s going to go up or down as much as the s&p 500 goes up or down over the course of you holding that okay. And so a lot of people are jumping in us Oh, thinking this is a perfect price tracker in relation to like, like oil and it’s not a perfect trace tracker. Okay.

Yesterday s&p 500 was up 2.3% and and you know what the fidelity 500 was up almost 2.3% it’s perfect, okay? It’s almost perfect. uso is not okay, this is not the spot price. So a lot of people think well, oil super low right now, this must be like an investment in spot price. Okay. And it’s not as simple as that.

It’s not as simple as like, you think like oil is really low right now, which I think all of us can come down and like come to that conclusion, like oil prices really low right? Now it’s likely going to go higher. So people think okay, uso is low so people think oil prices low, it’s gonna go higher, and I’ll just buy uso and I’m gonna make a bunch of money.

And that’s not how it works. Okay, that is not how it works at all okay, that when it comes to you, so it’s not an investment in the spot price is not nearly as simple as saying oil prices are going to be much higher in the future and this is trapped a lot of people and when I first started looking into this stuff, I thought the same exact thing.

I don’t usually invest in commodities. But when I saw oil prices going really low I thought the same exact thing that a lot of people have thought hey maybe uso is the play Okay, maybe this is a play and then you go to find out it’s a little more complicated than that okay, you can do this once again with like a fidelity 500 you think the stock market so put your money in something that’s an index fund that tracks sp 500 and you’ll go up okay?

Uso is futures contracts, is futures contracts, meaning it’s trying to bank on the price of oil over the next one to two months in the future. In a buys oil futures contracts. So it’s not a perfect like price predictor in terms of oil goes up.

The thing goes up so if you think oil is going to go up 20% next month doesn’t mean uso is going up 20% it could actually mean uso goes down over the course of that time. Okay, and I know a lot of you guys like say, What? What the heck are you talking about futures contracts?

This is confusing. Okay. I understand that. And it should be confusing to most people out there unless you’re an oil expert, or you under your understanding the stock market, a very high level, it should be confusing. Okay. So let me start breaking this down as simple as possible.

Okay. So essentially, right now, keep in mind, oil contracts always play for the next month. Okay. So you’re looking at June contracts Now that may one’s already expired. So when you look at the June contracts, which will expire, I believe it’s on the 21st. Okay. So when you look at the June contracts, they’re trading at about 17 bucks right now. Meanwhile, July contracts are trading at 22.

This is really bad for you. So why is this really bad? Well, the majority of USS contracts, or for the month of June, so they end up having to swap those out for July contracts. And this is where it gets really ugly. $17 what the June contracts are trading at 22 bucks is what the July contracts are trading at.

So they have to go ahead and roll the 17th and the 22 and pay an extra five bucks, more expensive per contract. That’s bad, bad. Okay, that’s really bad. And the other thing that’s also bad as they’re starting to buy some even further out contracts, like the next month after that, and meaning essentially, they even have some July contracts already in July is trading at 22.

They have to roll those into August contracts that are trading at nearly 25 that’s a really, really bad scenario for us, oh, they’re having to roll these contracts over. And this is why uso is is such a trap. And people get caught up into this because they think it’s just a spot praise by and it’s not it’s future contracts.

And so that’s a whole, like bad situation there. This is where we talk about contango and if you look at all the future months here, they’re all in contango all the way from June all the way to pretty much June of next year, every single contract other than looks like April 2021, as of right now, into may 2021, almost every single month is in contango right now, which is all bad news for you.

So doesn’t mean it’ll stay that way. But it’s bad news. Okay, now, good news for you. So would be if, let’s say these numbers were swapped around. So let’s say the June contracts are trading at 22. And the July contracts are trading at 17. That would actually be really good news for us.

So that would be what’s called backwardation and that’s a really positive thing because essentially, they’re going to get a lot more contracts than what they had in the past because I mean, imagine you know, prices are trading at 22 right now, they probably made a bunch of money on those contracts especially if they bought at a much lower price.

Meanwhile, they get to roll those over into $17 contracts. That would be a really really positive thing that would be a phenomenal phenomenal thing for us. Okay, and this is where so many people I’ve seen several articles today like so many people are getting caught up into this okay young investors rush.

Into struggling oil ETF that isn’t even tracking the price of oil anymore okay traders on Robin Hood and so fi invest rush to buy United States oil ETF uso which crashed this week and has lost roughly 80% of its value this year. Okay uso was the most bought why CMC it’s not a stock why common stock, man, come on, man. Come on.

You so was the most bought let’s call it thing on Robin Hood. And by far the highest volume trade on so fi invest on Tuesday, the ETF saw a 300% increase in ownership month over month guys. That is extraordinary. That means essentially, a lot of people have gotten caught up into this one thinking it’s a spot price buying it’s not and it’s confusing. I understand that.

Okay, listen to this craziness. By Wednesday, it was among talking about uso it was among the top 30 most held names on Robin Hood. Think about that thing about all the different you know ETFs out there the ones that track s&p 500 so that would probably be pretty popular right?

Think about a super popular stocks like an Amazon or Netflix or an apple or Tesla stock Google stock they think about how many super popular stocks are out there. And yet us O was among the top 30 mostly held names on Robin Hood. That is extraordinary. Okay, that’s absolutely extraordinary.

And so fi invest another trading platform used mostly by traders under 40 uso was quote by far the highest volume security on Tuesday and Wednesday, account ownership of uso has grown by 20% to 30%. Every day, every day since April 20. According to so five month over month ownership of the ETF has increased 300% Meanwhile, uso has plunged more than 45% this month and roughly 80% this year.

So when it comes to us so you think what with all those investors buying in uso you know, it’s not like a stock price. If you get a ton of Have investors to buy into a stock and you have very limited sellers on stock, what happens? The stock price goes up like crazy, right?

I’ll send a 2x 3x 4x the stock price, when it comes to something like this, it doesn’t move, it can’t move you. It’s not like you can get a bunch of people to buy into this and all sudden, magically, it’s going to go up or a bunch of people sell out and it goes down.

That’s not how this works at all. It’s not like a stock. Okay, so essentially, what’s happening here is a bunch of people are putting money in something that they didn’t even do the research work didn’t even really look into this. And it’s ridiculous.

Okay. And, you know, like I said, I’m new to commodities. And I’m looking at you so when i when i first you know, starting to kind of think about oil prices, I was like maybe there’s an opportunity and and the more and more I learned about it and more and more I was like, This isn’t an opportunity yet yet.

Key very key word is yet. You know, and this is just it’s just another case of people just like thinking, you know, something is something and they put money in and it’s just like, why not do the research man, while you get to put your hard earned dollars behind something that you haven’t even done the research work?

It’s just absolutely ridiculous. Okay, so next question is what needs to happen for me to put $100,000 in uso in the month of May Okay, what needs to happen here, and so a few things need to happen. One is the contango situation needs to go by by Okay, this whole situation that essentially uso is in right now, where these forward out contracts are trading way above the you know, the current month, that’s just really bad.

That’s, that’s a super negative thing for uso and you know, when you have that type of scenario, uso will likely continue to fall because they just have to keep rolling these contracts into more and more expensive things. And that’s just a really, really bad situation.

So I need contango to go Bye bye. Okay, what I would also need to se is I need to see oil continues to rebound. Okay, and I’m talking really mostly about the current month oil. If current month oil continues to rebound, it continues to get stronger and stronger and gets to a point where it’s like.

Okay, we’re looking pretty good. That could end up causing a backwardation situation Okay, in backwardation is the ultimate situation to kind of see when it comes to something like us. Oh, that’s exactly what you want to see. If you want to put a bunch of money in this like I might end up putting in this in the month of.

May I got to see backwardation if I can see backwardation and it starts getting close to that you know, then then we are talking okay then we are talking once again I want to you want to make this very clear. uso does not move like it’s a stock. It’s not like if everybody buys into uso it’s gonna make the price goes up.

It doesn’t work like that. It means absolutely nothing. Okay, Warren Buffett could buy an uso tomorrow and it’s not going to move us Oh, because it doesn’t move like that. Okay, so it’s not like a stock it’s no perception based like a Tesla stock, right? You know, Tesla, people could think it’s going to $0 people can think it’s going to $10,000 a share, right?

And it’s all perception base. And you know, in terms of its share price, it’s all supply and demand, if very few sellers are out there and there’s a ton of buyers guess where Tesla stock is going up and up. Now. The opposite situation happens and there’s ton of people that want to sell out of Tesla stock and there’s no buyers guess where Tesla stock is going it’s going down and down?

Uso is not like that. Okay, it’s not like that at all. And I’m going to give you an illustration on the whiteboard in just a moment. But let me just be very clear about this. If I don’t get the opportunity. Oh, well, if I don’t get the opportunity to put $100,000 in this may because there’s some backwardation starts in oil price to continue rebound. Oh, wow.

You know, it is what it is, you know, it’s not like I have to put 100k in that’s and I’m not gonna force the situation. If it doesn’t make sense, then it doesn’t make sense already. Guys, I just wrote all this out. Okay, here’s a situation we need.

Okay? Or here’s the situation I need if I’m going to go ahead and buy us Okay, so what we ought to understand is uso mostly owns June contracts for oil as of right now. Now, they don’t just own June contracts. They also own some July contracts.

But it’s a smaller amount. The majority of the money is in June contracts essentially right now. Okay, with some being in July. So here’s what we need to kind of see over the next couple of weeks for you know, me to make a big move into into us. Okay, I need to see that ju contracts end up going well over $20 Okay, going well over $20 within the next two weeks.

Right now, those contracts are trading in the 16 to 17 range, I really need those to go well over 20 because keep in mind when they had a swap a lot of those may contracts out for June, you know, oil was as far as the June contracts when there was some it was trading somewhere in the 20.

So I would need to see the June contracts go well, well over $20. If I saw that in the next couple of weeks, that would make me feel pretty confident that we could end up potentially getting some backwardation or essentially at least like the the contracts would be worth a lot more than they bought them for.

Okay, so that’s, that’s something I really got to see here over the next couple of weeks. And you know, who knows what will happen with that the good news is, it’s not like things can be priced in. It’s not like a stock where it’s like, oh, it’s already priced in that it went up a bunch.

It’s not how it works with us. Oh, and that’s something you’re kind of fortunate about. You get to see the details before you even mess with this one. Okay, which is which is pretty dang cool. Okay, here’s what else I need to see, okay, I need your July contracts to stay under $28 would be ideal.

I don’t want July contracts to go up like crazy. If the June contracts go up a bunch, but the July contracts go up a bunch of as well, we’re still going to be in a situation of big contango where essentially, imagine June contracts go to, let’s say, the June contract. So $28.

Okay, that means they probably made some some good money on the June contracts, depending on what price were bought, which could have been anywhere from 20 to 24. Okay, so that would be good as far as that goes. But if they have to swap those contracts out for July contracts that say, are trading at 38 bucks a share, you know, we’re still in a huge contango situation, that would obviously still be a very big negative for something like us.

Oh, okay, so So ideally, July, needs to stay down as well, June needs to bounce back a bunch, July needs to not go too crazy. Let’s put it that way. Okay. And then we could be in a situation where the economy starts to open back up. And although you guys know my stance on the economy.

I don’t think it’s going to open back up fully. And everything’s going to be amazing, I think it’s going to be a ramp that takes at least one to two years, if not more toward like two to three years to ramp the economy up. But the fact that economies could start opening back up potentially around the world over the next couple months, is definitely something that’s absolutely needed in the oil market.

Because right now, demand is like, you know, on the floor right now for oil, and we need a situation where these comes up a bit to a realistic level, and then that could help the back month oil prices. So hopefully, they get into a situation where the contracts they bought continue to increase an increase in value of Meanwhile, hopefully, the Forward Forward months don’t go too crazy up and they stay, you know, down to a relative levels.

If that can happen. uso is going to be very attractive. And uso could go from a situation where it’s too something to end up being, you know, five bucks, eight bucks, 10 bucks, but you really need, you know, all this to work out. And we’ll see if all this works out.

Like I said, it’s not like a stock where you have to worry about Oh crap, I got to get in this today, because everybody else is going to get in and before me and it’s gonna push the price up. It’s not like that. This is not like a stock. You can you can see how things are working out and be like, okay, everything’s kind of going in coordinates plan.

I can stick money in this. And then if things flipped the wrong way and go the wrong way. And you’re like, Whoa, we’re about to go into huge contango again. And these contracts are moving the wrong way in a massive way again, if that ends up being the situation, then you can go ahead and say, You know what, let me go ahead and cut my losses or let me take my profit and run you’re going to get to see everything how it works with this.

You just have to understand how it works, which a lot of people don’t they think it’s just like, oil price goes up. Do you make money? It’s not as simple as that. Unfortunately, I wish it was I wish it was but it’s not. And I hope this video did a really good job explaining uso and what would be an attractive situation for me to personally put you know $100,000 in this one so hope you guys enjoy.

This always makes you smash the thumbs up button. If you enjoyed me kind of going in depth on this one here. Thank you for watching and have a great day. Leave me a comment what you’re doing if you’re getting uso.

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