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Oil Logs Big Weekly Gain in a Year: Leveraged Energy ETFs Surge
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Oil rallied the most in a year last week, driven by a flare-up in Middle East tensions. Brent surged more than 8% and U.S. crude climbed 9.1%. The solid trend is likely to continue, given fears of Israel's retaliation response to the Iran strike, sparking concerns of a broader war in the Middle East.
Given this, the appeal for leveraged energy ETFs has increased as these offer huge gains in a very short time compared to simple products. Investors could tap the bullish trend in the sector with the help of leveraged ETFs. These are ProShares Ultra Oil & Gas ETF (DIG - Free Report) , Direxion Daily Energy Bull 2X Shares (ERX - Free Report) , Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report) and MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report) .
Middle East Tension Escalates
Iran launched about 200 ballistic missiles targeting Israel on Oct. 1, leading to growing fears of retaliation from Israel. If the conflict worsens, oil prices could reach $100 per barrel. A potential Israeli attack on Iranian oil production or export facilities could cause a material disruption, potentially more than a million barrels per day. Iran is the seventh largest oil producer in the world, exporting around half of its production abroad, mainly to China.
Traders have become most bullish in two years on oil. According to ICE Futures Europe data, money managers’ net long positions in Brent crude jumped by more than 20,000 contracts in the week through Oct. 1. Last week, traders snapped up December calls on Brent crude to bet on oil reaching $100 or higher, with aggregate call volume hitting a record on Wednesday.
ProShares Ultra Oil & Gas ETF seeks to deliver twice (2X or 200%) the daily performance of the S&P Energy Select Sector Index. It has been able to manage $93.2 million in its asset base and trades in a good volume of about 84,000 shares per day on average. DIG charges 95 bps in fees per year.
Direxion Daily Energy Bull 2X Shares (ERX - Free Report)
Direxion Daily Energy Bull 2X Shares creates two times leveraged position in the Energy Select Sector Index, while charging 91 bps in fees a year. Direxion Daily Energy Bull 2X Shares is a popular and liquid option in the energy leveraged space with AUM of $305.5 million and an average trading volume of around 387,000 shares.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report)
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares offers two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $346.4 million in its asset base and the average daily volume is solid at around 655,000 shares. Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares charges 92 bps in annual fees (read: Middle East Tensions Lift Energy ETFs: Will the Rally Last?).
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report)
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN is linked to three times leveraged performance of the MicroSectors Oil & Gas Exploration & Production Index. The index provides exposure to large-capitalization companies that are domiciled and listed in the United States and active in the exploration and production of oil and gas. MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN has amassed $46.3 million in its asset base and trades in a lower average volume of 114,000 million shares. It charges investors 95 bps in annual fees and expenses.
Bottom Line
As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may make these products deviate significantly from the expected long-term performance figures (see: all the Leveraged Equity ETFs here).
Still, for ETF investors who are bullish on the energy sector for the near term, either of the above products can be an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance and a belief that the trend is the friend in this corner of the investing world.
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Oil Logs Big Weekly Gain in a Year: Leveraged Energy ETFs Surge
Oil rallied the most in a year last week, driven by a flare-up in Middle East tensions. Brent surged more than 8% and U.S. crude climbed 9.1%. The solid trend is likely to continue, given fears of Israel's retaliation response to the Iran strike, sparking concerns of a broader war in the Middle East.
Given this, the appeal for leveraged energy ETFs has increased as these offer huge gains in a very short time compared to simple products. Investors could tap the bullish trend in the sector with the help of leveraged ETFs. These are ProShares Ultra Oil & Gas ETF (DIG - Free Report) , Direxion Daily Energy Bull 2X Shares (ERX - Free Report) , Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report) and MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report) .
Middle East Tension Escalates
Iran launched about 200 ballistic missiles targeting Israel on Oct. 1, leading to growing fears of retaliation from Israel. If the conflict worsens, oil prices could reach $100 per barrel. A potential Israeli attack on Iranian oil production or export facilities could cause a material disruption, potentially more than a million barrels per day. Iran is the seventh largest oil producer in the world, exporting around half of its production abroad, mainly to China.
If Israel carried out a major attack on Iran's oil facilities, it could take 1.5 million barrels per day supply off the market, per an analyst at Citigroup (read: ETFs to Profit From Rising Middle East Tension, Port Strike).
Bullish Bets Rise
Traders have become most bullish in two years on oil. According to ICE Futures Europe data, money managers’ net long positions in Brent crude jumped by more than 20,000 contracts in the week through Oct. 1. Last week, traders snapped up December calls on Brent crude to bet on oil reaching $100 or higher, with aggregate call volume hitting a record on Wednesday.
Here, we have profiled the abovementioned ETFs:
ProShares Ultra Oil & Gas ETF (DIG - Free Report)
ProShares Ultra Oil & Gas ETF seeks to deliver twice (2X or 200%) the daily performance of the S&P Energy Select Sector Index. It has been able to manage $93.2 million in its asset base and trades in a good volume of about 84,000 shares per day on average. DIG charges 95 bps in fees per year.
Direxion Daily Energy Bull 2X Shares (ERX - Free Report)
Direxion Daily Energy Bull 2X Shares creates two times leveraged position in the Energy Select Sector Index, while charging 91 bps in fees a year. Direxion Daily Energy Bull 2X Shares is a popular and liquid option in the energy leveraged space with AUM of $305.5 million and an average trading volume of around 387,000 shares.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report)
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares offers two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $346.4 million in its asset base and the average daily volume is solid at around 655,000 shares. Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares charges 92 bps in annual fees (read: Middle East Tensions Lift Energy ETFs: Will the Rally Last?).
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report)
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN is linked to three times leveraged performance of the MicroSectors Oil & Gas Exploration & Production Index. The index provides exposure to large-capitalization companies that are domiciled and listed in the United States and active in the exploration and production of oil and gas. MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN has amassed $46.3 million in its asset base and trades in a lower average volume of 114,000 million shares. It charges investors 95 bps in annual fees and expenses.
Bottom Line
As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may make these products deviate significantly from the expected long-term performance figures (see: all the Leveraged Equity ETFs here).
Still, for ETF investors who are bullish on the energy sector for the near term, either of the above products can be an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance and a belief that the trend is the friend in this corner of the investing world.