Get 40% Off
👀 👁 🧿 All eyes on Biogen, up +4,56% after posting earnings. Our AI picked it in March 2024.
Which stocks will surge next?
Unlock AI-picked Stocks

Forgo USO In Favor Of UGA. Better Yet, Try This Pair Trade

Published 07/29/2015, 07:35 AM
Updated 07/09/2023, 06:31 AM

I recently read an article that attempted to dive into the nuances of trading the United States Oil ETF (NYSE:USO) versus the United States Gasoline ETF (NYSE:UGA). I suddenly realized that through all the nuanced comparisons, the forest was being lost for the trees.

Here's the bottom line: Since at least 2009, UGA has greatly outperformed USO. In fact, the dominance is so great that for longer-term holders UGA is the clear winner.

UGA clearly dominates USO in long-term performance

UGA clearly dominates USO in long-term performance

A pairs trade shorting USO versus going long UGA is an even better long-term strategy and would have delivered positive long-term gains despite the recent plunge in the oil patch. Most of these gains come thanks to the accelerated out-performance of UGA over USO in 2015.

The ratio of UGA versus USO demonstrates the out-performance in even greater clarity.

The ratio of UGA versus USO demonstrates the out-performance in even greater clarity.

These charts make me rethink how I approach the oil trade (for example, see “The Commodities Crash Accelerates: Scenarios for Trading Oil“). My only hesitation from jumping on a trade that assumes UGA out-performance over USO is that the UGA/USO ratio has accelerated so much in 2015 that a pullback seems to be very likely just from a technical standpoint. Moreover, USO seems very likely to bounce soon and initiating a short would be much better to do at higher prices from current levels.

Note that I have executed the USO rangebound trade as described in the earlier piece.

Be careful out there!

Full disclosure: long USO call options, short USO call and put options

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.