Shorting a single energy commodity or a group of energy commodities is the goal of inverse oil exchange-traded funds (ETFs), which are leveraged and can be quite dangerous. Crude oil, gasoline, and heating oil are examples of commodities that these ETFs often short.
When the prices of the underlying oil-based commodities fall, either due to a drop in worldwide demand or an increase in global supply, these ETFs gain. Since early 2020, when the impact of the coronavirus epidemic pushed oil prices into negative territory, prices have returned dramatically. It’s no surprise that inverse oil ETFs have fallen sharply when oil prices have rebounded.
How do I go about shorting crude oil?
If you’re negative on crude oil, a short position in the crude oil futures market can help you profit from a drop in the price. Selling (shorting) one or more crude oil futures contracts on a futures exchange is one way to do so.
Example: Short Crude Oil Futures Trade
At USD 44.20/barrel, you decide to sell one near-month NYMEX Brent Crude Oil Futures contract. The value of a Brent Crude Oil futures contract is USD 44,200 since each contract represents 1000 barrels of crude oil. You must put up an initial margin of USD 12,825 to initiate the short futures transaction.
The price of crude oil decreases a week later, and the price of NYMEX Brent Crude Oil futures falls to USD 39.78 per barrel as a result. Each contract now only has a value of USD 39,780. So, by closing your futures position now, you can profit USD 4,420 on your short position in Brent Crude Oil Futures.
What exactly is an inverse oil ETF?
Inverse/Short Oil ETFs strive to give the inverse of various oil-based natural resource prices on a daily or monthly basis. These funds can invest in a single commodity or a group of commodities, such as crude oil (Brent and WTI), gasoline, and heating oil. Futures are used in the funds, and they can be leveraged.
Is there a 3X oil ETF available?
Leveraged 3X Oil ETFs track futures prices on a variety of oil-based natural resources. Crude oil (Brent and WTI), heating oil, and gasoline are among them. The ETFs use leverage to achieve three times the daily or monthly return on the underlying oil commodity prices.
How do I purchase WTI crude oil?
- Crude oil is a vital commodity that supplies the worldwide market with energy and petroleum goods.
- Oil derivatives or the USO exchange traded product, which tracks the price of WTI crude, allow investors to speculate directly on the price of oil.
- Oil drillers and oil services businesses, as well as ETFs that specialize in these sectors, provide another way for investors to play the oil markets in a more indirect way.
How does the SCO ETF function?
Because SCO’s index is futures-based, its returns reflect both price appreciation on its futures contracts and any profit from “rolling” those futures contracts. The underlying index gives you exposure to three different contracts, each with a 1/3 weighting.
What are 3X leveraged exchange-traded funds (ETFs)?
Leveraged 3X ETFs monitor a wide range of asset classes, including stocks, bonds, and commodity futures, and use leverage to achieve three times the daily or monthly return of the underlying index. These ETFs are available in both long and short versions.
More information on Leveraged 3X ETFs can be found by clicking on the tabs below, which include historical performance, dividends, holdings, expense ratios, technical indicators, analyst reports, and more. Select an option by clicking on it.
Why is the oil ETF falling?
On Monday, crude oil and crude ETFs were under pressure due to an increase in coronavirus cases. Investors are anxious about a global economic slowdown, therefore oil prices have fallen again, adding to significant losses from the previous week.
West Texas Intermediate crude futures in the United States plummeted as much as 4% to $65.15 a barrel before recovering some of their losses. Meanwhile, Brent crude, the international benchmark, fell 3.5 percent to $68.21 a barrel.
Some crude oil ETFs were also impacted by the decision. Crude ETFs like the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil (UCO) both fell 2.42 percent and 4.82 percent, respectively.
UCO is for more aggressive investors, as it provides 2x daily leverage on a crude oil futures index, allowing it to trade at a higher risk.
What exactly is the dig ETF?
DIG offers 2x leveraged exposure to the Dow Jones U.S. Oil & Gas Index, which is a market-cap-weighted index of Dow Jones-classified US oil and gas businesses. DIG is a short-term trading instrument, not a long-term investment vehicle, because it is a geared product with daily resets.
What is a leveraged exchange-traded fund?
A leveraged exchange-traded fund (ETF) is a marketable product that leverages the returns of an underlying index by using financial derivatives and loans. A leveraged exchange-traded fund may aim for a 2:1 or 3:1 ratio, whereas a regular exchange-traded fund normally tracks the equities in its underlying index one-to-one.
Most indices, such as the Nasdaq 100 Index and the Dow Jones Industrial Average, include leveraged ETFs (DJIA).