With oil prices faltering again, some active, risk-tolerant traders are looking for options to profit from a slide in energy equities. For now, the Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, has been steady as oil reentered a bear market.
The third quarter is historically unkind to the energy sector, but some industry observers believe the recent pullback in crude prices is not a cause for alarm and that there is still upside available with some of the big-name integrated oil companies held by ETFs like XLE.
However, there are some viable plays among ETFs for traders looking to profit from energy sector downside.
SEE MORE: Why Investors are Bearish on Oil ETFs
Energy stocks historically are slack performers over the next several months while oil is one of the third quarter’s best-performing commodities on a historical basis. Rivals to XLE include the Vanguard Energy ETF (NYSEArca: VDE), iShares U.S. Energy ETF (NYSEArca: IYE) and the Fidelity MSCI Energy Index ETF (NYSEArca: FENY). However, the reverse of that scenario is currently playing out.
[related_stories]Some traders advise shorting oil services stocks or ETFs, an area of the energy sector that is home to a lot of names that “are burdened with high debt-to-equity ratios and falling revenue as they struggle to service the massive debt that they racked up during the halcyon days of rising energy prices. There are safer and more promising ways to make money, even in this risky broader market,” according to TheStreet.com.
For those seeking a hedge against further weakness in the energy sector, the ProShares Short Oil & Gas (NYSEArca: DDG) tries to reflect the inverse, or -100%, daily performance of the Dow Jones U.S. Oil & Gas Index.
SEE MORE: 32 Best ETFs to Track Crude Oil
The UltraShort Oil & Gas ProShares (NYSEArca: DUG) takes two times the inverse, or -200%, daily performance of the Dow Jones U.S. Oil & Gas Index. More aggressive traders can take a look at the Direxion Daily Energy Bear 3X Shares (NYSEArca: ERY), which reflects three times the inverse, or -300%, daily performance of the energy select sector index.
Moreover, the recently launched Direxion Daily S&P Oil & Gas Exploration & Production Bear Shares (NYSEArca: DRIP) takes the -3x, or -300%, daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
For more information on the Oil ETFs, visit our Oil category.
UltraShort Oil & Gas ProShares
