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Oil Jumps on Middle East Conflict, Leveraged ETFs to Profit
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After logging in the biggest weekly decline since March, oil price jumped 5%, following a surprise severe attack on Israel by Palestinian militants, Hamas. The dramatic military clashes between Israeli and Hamas forces over the weekend have deepened political uncertainty across the Middle East, threatening oil supply. Notably, the Middle East is home to almost a third of global supply.
Investors could tap the surging oil price with the help of leveraged energy ETFs to make quick profits, as these could see huge gains in a very short time frame compared to simple products. 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) , MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) and MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report) .
The escalating violence claimed more than 1,100 lives on both sides as the conflict entered its third day. In response, the United States is dispatching warships to the region. Although the ongoing strife does not pose an immediate threat to oil flows, concerns are growing that the conflict could spiral into a larger proxy war, potentially involving the United States and Iran. Any retaliation against Tehran amid allegations of its involvement could endanger the passage of vessels through the Strait of Hormuz, a vital conduit Iran has previously threatened to close.
The attacks come after months of easing tension between Washington and Tehran, with crude shipments from Iran rebounding to a five-year high. Brent futures and WTI dropped by around $10 a barrel this month on worries of high interest rates and a slowdown in growth clouding the demand outlook (read: Oil to Touch $100 Soon? Sector ETFs to Benefit/Lose).
With 40% of world exports going through the Strait of Hormuz, Rapidan Energy Group’s president, Bob McNally projects a conflict between Israel and Iran to easily lead to a $5 to $10 bump in oil prices. The strait is considered the world’s most important oil transit chokepoint and is in between Oman and Iran.
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 $127.1 million in its asset base and trades in a good volume of about 62,000 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 92 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 $375 million and an average trading volume of around 567,000 shares (read: Dig Oil With These Leveraged Energy ETFs).
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 $532.7 million in its asset base and the average daily volume is solid at around 1.2 million shares. Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares charges 93 bps in annual fees.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report)
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times (3X or 300%) leveraged exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies. MicroSectors U.S. Big Oil Index 3X Leveraged ETN has been able to manage $1.5 billion in its asset base while trading in an average daily volume of 56,000 shares. Its expense ratio is 0.95%.
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 $57.9 million in its asset base and trades in a lower average volume of 97,000 million shares. It charges investors 95 bps in annual fees and expenses.
Bottom Line
As a caveat, investors should note that these products are highly 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 Jumps on Middle East Conflict, Leveraged ETFs to Profit
After logging in the biggest weekly decline since March, oil price jumped 5%, following a surprise severe attack on Israel by Palestinian militants, Hamas. The dramatic military clashes between Israeli and Hamas forces over the weekend have deepened political uncertainty across the Middle East, threatening oil supply. Notably, the Middle East is home to almost a third of global supply.
Investors could tap the surging oil price with the help of leveraged energy ETFs to make quick profits, as these could see huge gains in a very short time frame compared to simple products. 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) , MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) and MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report) .
The escalating violence claimed more than 1,100 lives on both sides as the conflict entered its third day. In response, the United States is dispatching warships to the region. Although the ongoing strife does not pose an immediate threat to oil flows, concerns are growing that the conflict could spiral into a larger proxy war, potentially involving the United States and Iran. Any retaliation against Tehran amid allegations of its involvement could endanger the passage of vessels through the Strait of Hormuz, a vital conduit Iran has previously threatened to close.
The attacks come after months of easing tension between Washington and Tehran, with crude shipments from Iran rebounding to a five-year high. Brent futures and WTI dropped by around $10 a barrel this month on worries of high interest rates and a slowdown in growth clouding the demand outlook (read: Oil to Touch $100 Soon? Sector ETFs to Benefit/Lose).
With 40% of world exports going through the Strait of Hormuz, Rapidan Energy Group’s president, Bob McNally projects a conflict between Israel and Iran to easily lead to a $5 to $10 bump in oil prices. The strait is considered the world’s most important oil transit chokepoint and is in between Oman and Iran.
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 $127.1 million in its asset base and trades in a good volume of about 62,000 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 92 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 $375 million and an average trading volume of around 567,000 shares (read: Dig Oil With These Leveraged Energy ETFs).
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 $532.7 million in its asset base and the average daily volume is solid at around 1.2 million shares. Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares charges 93 bps in annual fees.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report)
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times (3X or 300%) leveraged exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies. MicroSectors U.S. Big Oil Index 3X Leveraged ETN has been able to manage $1.5 billion in its asset base while trading in an average daily volume of 56,000 shares. Its expense ratio is 0.95%.
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 $57.9 million in its asset base and trades in a lower average volume of 97,000 million shares. It charges investors 95 bps in annual fees and expenses.
Bottom Line
As a caveat, investors should note that these products are highly 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.