With two popular leveraged oil exchange traded notes delisting as of the end of Thursday, more aggressive traders may turn to leveraged oil & gas exploration & production exchange traded funds instead.
Credit Suisse AG, the underwriting bank for the VelocityShares 3x Long Crude ETN (NYSEArca: UWTI), which one traded with over $1 billion in assets under management, and VelocityShares 3x Inverse Crude (NYSEArca: DWTI), announced that it will delist and suspend further issuance of the two leveraged ETNs effective December 9. The two ETNs will remain outstanding, but they will only trade on an over-the-counter basis.
UWTI and DWTI have been go-to, easy-to-use plays to capitalize on turns in West Texas Intermediate crude oil prices. Over the past month as WTI crude oil futures jumped back above $50 per barrel, UWTI increased 23.1% while DWTI declined 32.9%.
Credit Suisse previously warned that the delisting process “may influence the market value” of the funds, potentially diminishing liquidity and causing traders reduce activity in the investments before their delisting and even affect pricing.
Alternatively, investors may be shifting their attention over to leveraged and inverse energy sector ETFs. The energy sector has surged in response to the Organization of Petroleum Exporting Countries’ decision on curbing oil production, and the oil exploration and production sub-sector, which has been hardest hit during the prior energy sell-off, was the quickest to rebound.
Consequently, traders have played the sudden turns in the sub-sector through the relatively new Direxion Daily S&P Oil & Gas Exploration & Production Bear 3x Shares (NYSEArca: DRIP), which takes the -3x or -300% daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index, and Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (NYSEArca: GUSH), the bullish alternative to DRIP. Over the past month, GUSH surged 66.0% while DRIP declined 50.7%.
GUSH and DRIP are “not a 100% proxy to oil, but they are highly correlated,” David Fajardo, Senior Vice President of Direxion Investments, told ETF Trends in a call. “They seem to be a decent proxy.”
For those who are more faint of heart, consider the ProShares Ultra Oil & Gas Exploration & Production ETF (NYSEArca: UOP), which takes the 2x or 200% daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index, and the inverse -2x version ProShares UltraShort Oil & Gas Exploration & Production (NYSEArca: SOP). Over the past month, UOP rose 21.1% and SOP dropped 38.1%.
Aggressive oil traders, though, may still garner leveraged exposure to the oil market moves through other fund options. For instance, while they are not as big as the popular triple-leveraged ETNs, bullish traders can consider the ProShares Ultra Bloomberg Crude Oil (NYSEArca: UCO), which takes two times or 200% daily performance of WTI crude oil, and bearish investors can take a look at the ProShares UltraShort Bloomberg Crude Oil (NYSEArca: SCO), which tries to reflect the two times inverse or -200% daily performance of WTI crude oil, and DB Crude Oil Double Short ETN (NYSEArca: DTO), which also follows a -200% performance of oil.
Traders that like the idea of triple-leveraged oil exchange traded products might not be without for long. United States Commodities Funds (USCF) has already filed plans for a triple-leveraged crude oil product.
Potential investors should note that these geared ETFs are not like traditional beta-index funds and should be aware of the risks associated with these products. Traders should keep in mind that these leveraged ETFs are designed to produce double or triple the performance of the underlying market on a daily basis. Consequently, when investors look at the long-term performance of a typical leveraged ETF, people may notice that the funds do not perfectly reflect their intended strategies.