April 21, 2020 - 1:13pm EST by
2020 2021
Price: 2.65 EPS 0 0
Shares Out. (in M): 1,188 P/E 0 0
Market Cap (in $M): 3,148 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0
Borrow Cost: Available 0-15% cost

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I'm going to keep this brief and somewhat loose as the numbers are moving around rapidly.


USO is an ETF which tracks near term oil futures (presently mostly June but also some July contracts).  Due to the massive move in WTI yesterday USO has run out of registered shares and cannot issue anymore for creation.  The company has filed an S-3 to register 4bln shares (vs. 1.2bln outstanding at 4/20) but the registration statement has not been declare effective.  As such, the mechanism for this ETF to trade at/near NAV has been temporarily broken. .


USO had a net asset value of $4,110m as of the close of business 4/20/2020.  This was based on 20.43 futures values for June 2020 NYMEX Oil and 26.28 futures values for July 2020 NYMEX Oil.  Presently those contracts are trading around $11.80 and $20.90 respectively (though they're very volatile today).


The following website lists USO's holdings: http://www.uscfinvestments.com/holdings/uso


Updating their Crude futures contracts (and pending trades as of 4/20) to present prices points to loses today of ~$1.9bln.  With a Net Asset value of $4.1bln at 4/20 close the new NAV should be ~$2.2bln.  With 1,188 shares outstanding at end of business on 4/20 this points to a NAV per share of $1.86.  The stock is currently trading around $2.66 for a premium of 30% to 50% depending on what futures are doing at any given moment.  According to a USO/USCF representative I spoke with, they are being inundated with calls from retail investors wondering how to get in on the current rally in spot crude (which is up a lot while futures and thus USO's NAV are down)  - buying is not informed and the premium should collapse when the registration statement is declared effective.


You can play this two ways:

1) Sell futures in line with your ownership of the those futures through USO (I'm not doing this b/c of the headache and timeliness of the idea)

2) Short USO.  Probably, once the shares are approved this works out by the shares falling (as creators sell them) AND futures values rising (as creators buy them) so you probably won't make the full 30-40% anyway.


Risks here, as I see them are:

1) There's a real problem and USO can't get their registration statement declared effective for the foreseeable future.  I have no idea why this would be but the company hasn't explained the failure to get it approved.

2) You short USO and futures rise and you don't make money even shorting at a 30-40% premium.

3) Short squeeze gets you.  Currently IBKR shows ~4mm shares available and borrow rates are only 3.7% but I'm obviously not the only person who's aware of this.  If retail keeps pouring money in and the borrow disappears before the new shares are available for creation this could get painful.

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Registration statement approved and new shares created.

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