Traders Bet on an Oil Rally With This ETF

Oil prices and energy stocks are slumping, but those scenarios are not preventing some aggressive traders from making leveraged bets on an energy sector rebound.

Data confirm that in recent weeks, traders have been flocking to the Direxion Daily Energy Bull 3X Shares (ERX). ERX tracks the 300% daily performance of the Energy Select Sector Index. The recent moves into ERX could prove prescient if oil snaps out of its recent malaise.

“One reason oil prices may be near a bottom: production appears set to decline after oversupply concerns contributed to the recent rout,” said BlackRock in a recent note. “The Organization of the Petroleum Exporting Countries (OPEC) and its partners are expected to cut production at their meeting this week in an effort to help stabilize prices.”

Since 2016, OPEC pledges to curb production have steadied oil prices after substantial declines. Oil prices have previously hit multi-year highs in mid-2018 after President Donald Trump withdrew from the Iran nuclear deal, which reinstated sanctions against the Middle Eastern country’s crude exports. Iran’s oil shipments have since declined by over a third and analysts expect more than a million barrels per day could be cut off from the market by the first quarter of 2019.

ERX ETF Details

ERX’s underlying index devotes a significant portion of its lineup to Dow components Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX), the two largest U.S. oil companies. That due combines for over 39% of the benchmark’s weight, according to Direxion data.

With that hefty exposure to Exxon and Chevron, ERX becomes a de facto leveraged bet on those names rebounding. Traders do not seem to mind. Over the past month, ERX is averaging daily inflows of $3.26 million, good for one of the best totals among Direxion’s leveraged bullish ETFs, according to issuer data.

ERX has a bearish cousin, the Direxion Daily Energy Bear 3X Shares (NYSEArca: ERY). ERY seeks daily investment results equal to 300% of the inverse of the daily performance of the Energy Select Sector Index.

For more information on the energy sector, visit our energy category.