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Hi,

This is my first post in this forum. I have a question on this oil ETF: HOU.

i bought 5000 shares earlier at 4.2-ish, and now it's trading at 3.8-3.9-ish. :upset: I understand this type of ETF is very risky and is only for very short period of time (i.e. a couple day / week). But what if I already have these shares stuck in my portfolio. Should I hold on to it until it breaks even?

Any thoughts are appreciated.

Thanks,
 

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Look at this (rather dated) chart in this link. http://www.wikinvest.com/stock/Horizons_BetaPro_NYMEX_Crude_Oil_Bull_Plus_ETF_(TSE:HOU) And this one for more recent data http://quote.morningstar.ca/quicktakes/etf/etf_ca.aspx?t=FOUSA06OMH&region=can&culture=en-CA These ETFs have double the market impact due to leveraging and should perhaps only be held for hours or days at most. It is a bet on the direction of next month's oil futures.

More importantly, read this article http://www.theglobeandmail.com/glob...-with-leveraged-etfs/article4291596/?page=all There is a good chance of losing the longer one holds.

While many/most of us believe the direction of oil is now up, one can asphyixiate during the wait. You might consider cutting and running and call your loss the tuition for learning at the U of Investing.
 

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This is a leverage fund. The risks about leverage funds are two-fold:

First, you get killed (quite quickly) when the wind is against you, as it's leveraged. And from my perspective the whole oil thing is half macro and half political which makes laymen difficult to speculate on, especially if you go all-in with leverages.

Second, more important from my perspective, is that this fund never truly replicate WTI. Let's do a little calculation:
Day WTI HOU Change of WTI Change of HOU
0 40 1 +5% +10%
1 42 1.1 - 5% -10%
2 39.90 0.99
You can see that while WTI only drops for 1/400 (0.1 over 40), HOU drops for 1/100, NOT 1/200. Because HOU only doubles the daily performance, in the long run it will deviate more and more from WTI, especially in a volatile market.

IMO the best time to speculate on these leveraged funds is in the early-middle of a long trend and get out when a contrary run begins, so you don't get fat drawbacks from time to time. But ordinary people like us are not sophisticated enough to pursue these trades.
 

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From today's press release:

TORONTO – April 21, 2020 – Following its announcement earlier this morning, due to ongoing extreme market volatility in crude oil markets, Horizons ETFs Management (Canada) Inc. (the “Manager”) announces that the indicative net asset value per share of the BetaPro Crude Oil 2x Daily Bull ETF (“HOU”) as at 2:30 p.m. (EST), when the exposure of the ETF was rebalanced to the settlement price of the Light Sweet Crude Oil June futures contract, was estimated to be approximately $0.37 per share.
HOU closed around $3.10 yesterday and is worth $0.37 today, a single day decline of 88%
 

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I had BNN on in the background, I think they said that it will only be priced at end of day, until further notice.
 

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When I say it's worth 37 cents, I mean that is Horizon's official NAV for today's day end as per their press release. But the trading price could be wildly different, and so far, it's been trading way above fair value.
 

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All these crude oil ETFs are greatly distorted from reality with massive inflows and typically only holding next months contract. Prices will not reflect oil prices. Lesson learned by me on Monday after researching more overnight. Bought $1000 worth of options for the first time ever for USO to hit $9 by Dec 2022 which seemed like a slam dunk until did research after. Got too excited.But thankfully was a small piece of the portfolio.
 

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Crude oil ETFs are broken for a while. They're just dumb. I mean, really dumb. The bear and the bull crude oil ETFs are both broken. You are guaranteed to lose money in these if your timing is not really good or really lucky.

I've been buying oil companies to play the bounce back in oil. Suncor and CNQ have decades of physical oil in the ground and are low cost leaders with 100%+ upside if oil gets back to $50 in a few years. Not complicated. But probably won't return 50% in a day on a rash gamble.

They won't likely drop 50% in a day either though, although they did in a week. But the difference is that they aren't going to zero. You can double down on SU and CNQ if they fell in half. You can't do that with the crude oil ETFs - you are just compounding losses.
 

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Hi,

This is my first post in this forum. I have a question on this oil ETF: HOU.

i bought 5000 shares earlier at 4.2-ish, and now it's trading at 3.8-3.9-ish. :upset: I understand this type of ETF is very risky and is only for very short period of time (i.e. a couple day / week). But what if I already have these shares stuck in my portfolio. Should I hold on to it until it breaks even?

Any thoughts are appreciated.

Thanks,
Before buying you should have black & white parameters of when to buy & sell that give you an edge, fits your personality & uses sound money management. If not all criteria is met always exit position ASAP
 

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Just cross posting from IV for those interested.

Warning: HOU and HOD
Horizons ETFs Management Inc. is warning investors not to buy units of two of its popular oil-focused exchange-traded funds, as the ETFs face possible implosion because of collapsing energy prices.

The company’s two short-term oil funds, Crude Oil 2x Daily Bull (HOU) and Crude Oil -2x Daily Bear (HOD), may be forced to liquidate their assets if prices go much lower, Horizons said in a statement on Monday.


https://www.theglobeandmail.com/business/article-horizons-warns-investors-to-avoid-two-of-its-oil-etfs/
 

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Horizons is now talking about changing the mandate of HOU. They will have a shareholder meeting on July 2 to discuss.

They may change the underlying index to a proprietary index that gives them discretion on what to do. In my opinion, that's similar to what USO has done... it's a way to give the managers more discretion to do what they want with the futures. The idea is that this would prevent a systemic disaster such as being forced to roll futures at a predictable time.

This comes with a loss of transparency, which has happened with USO as well, because then you're no longer sure what they are holding or what their next move will be. These things are becoming more active, not passive.

Basically these oil ETFs are becoming more like active 'managed futures' accounts where you will have to trust the manager to handle the futures well.
 
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