| Dear Friend,
I am writing to you because you are Auto-Trading our Black Gold portfolio which uses USO as the underlying. We set up this portfolio with expectations that the price of oil, and USO, would fall. Goldman Sachs and several other banks were projecting oil prices about $20 less than they were at the time. Unfortunately, the price of oil has steadily climbed for the last 6 weeks, hurting our portfolio value.
Even worse, USO option prices have plummeted (IV has fallen). It is impossible to set up a risk profile graph which shows protection of more than $1 in both directions. This is too small of a break-even range for us to be comfortable. Over the last year, USO has moved in one direction or the other by $1 or more in 3 out of 4 weeks. If this volatility continued into the future, our portfolio would lose money 75% of the time, even if we could correctly guess which way the price of oil was headed. Admittedly, weekly fluctuations have been less than $1 in 5 of the last 6 weeks, but that quietness is likely to be an anomaly.
For these reasons, we will close out our USO positions this week, leaving the portfolio in cash. We will continue the Black Gold portfolio using long-term options on SVXY rather than trading USO options. Full details of this new strategy will be forthcoming in the Saturday Report.
I hope you will continue with the Black Gold portfolio using the new strategy (I plan to add several units in my personal account – I think it will be our best strategy ever). But if you do not want to trade with a different underlying, please eliminate your allocation at thinkorswim.
I am sorry that USO did not work out for us. I did have high hopes, but I am more excited about the new way of trading that I will tell you all about on Saturday. Thanks for your continued support.
Happy trading,
Terry
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