Leveraging up The Energy Trade

Oil’s recent rebound is lifting the once downtrodden energy sector, which is still one of the worst-performing groups in the S&P 500 this year.

Aggressive traders can prepare for a possible pullback with the 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. DRIP has a bullish counterpart, the Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (NYSEArca:GUSH).

Active traders have utilized leveraged and inverse ETFs in a number of portfolio strategies. A small percentage allocations in inverse leveraged options can help hedge or mitigate detraction from existing positions, so investors are simultaneously going long and short to hedge risk. Through leveraged and inverse ETFs, investors may limit portfolio volatility or diminish drawdowns in the event of a steep market correction.

While the Organization of Petroleum Exporting Countries have moved to cut production, expectations of continued U.S. shale production remain a deterring factor. Nevertheless, recent U.S. inventory drawdowns, which if sustained, could support the current price levels. With 2018 imminent, there are several factors for oil investors to consider.

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