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ETF vs. ETN: How do I invest in a commodity?


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View Poll Results: How would you invest in oil?
USO - Buy & Hold 0 0%
AMEX: OIL - Buy & Hold 0 0%
Options - Long Calls 0 0%
Options - Long Verticals 2 100.00%
Options - Naked Puts 0 0%
Multiple Choice Poll. Voters: 2. You may not vote on this poll

 
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ETF vs. ETN: How do I invest in a commodity?

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  #1 (permalink)
New York City, New York
 
 
Posts: 18 since Sep 2014
Thanks: 2 given, 5 received

Hello Everyone,

I'm hoping some of you folks could help me out. I'm trying to distinguish the difference between an ETF versus an ETN, and all I have been able to distinguish is that ETNs are a debt instrument backed by the issuers credit rating, and ETFs are backed by actual assets held by the ETF. I'd like to invest in oil to be specific, as I believe these low levels present an excellent buying opportunity. However, I'm not sure which is the best way to go. USO for example, or AMEX: OIL?

What is the difference between the two? According to the iPath ETN page, the returns for OIL are consistently negative across a period ranging from one month to ten years. Obviously I'm missing something, because with that track record I can't imagine why anyone would want to buy in! OIL seems to be at a good support level for a longer term buy and hold, but I don't want to put money into anything I don't completely understand. I feel like USO would be the more sensible choice here, or perhaps for leverage purposes, USO options 3-6 months out. Considering a vertical spread, naked puts, or just long ITM calls. Thoughts? Feel free to vote in the poll! Thanks in advance!

Best Regards,
C. Negatory

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  #3 (permalink)
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CaptainNegatory View Post
Hello Everyone,

I'm hoping some of you folks could help me out. I'm trying to distinguish the difference between an ETF versus an ETN, and all I have been able to distinguish is that ETNs are a debt instrument backed by the issuers credit rating, and ETFs are backed by actual assets held by the ETF. I'd like to invest in oil to be specific, as I believe these low levels present an excellent buying opportunity. However, I'm not sure which is the best way to go. USO for example, or AMEX: OIL?

What is the difference between the two? According to the iPath ETN page, the returns for OIL are consistently negative across a period ranging from one month to ten years. Obviously I'm missing something, because with that track record I can't imagine why anyone would want to buy in! OIL seems to be at a good support level for a longer term buy and hold, but I don't want to put money into anything I don't completely understand. I feel like USO would be the more sensible choice here, or perhaps for leverage purposes, USO options 3-6 months out. Considering a vertical spread, naked puts, or just long ITM calls. Thoughts? Feel free to vote in the poll! Thanks in advance!

Best Regards,
C. Negatory

One way to do it might be to sell some put spreads about 1 SD OTM.

I tried buying some USO positions like you're talking about several years ago when Oil was unusually low. The part that disappointed me was that when oil went up 5% USO only went up about half of that. But when old went down 5% USO tracked it downwards pretty good. Those numbers are not literal but as an example of my point.

I would be curious about other answers you might get here.

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Last Updated on November 22, 2014


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