Oil ETFs Explained – Oil ETF Types

I made no move today even though I was almost ready to sell SKF. It didn’t quite reach the $160 target I have.  Plus options are always more complicated than selling stocks since it involves spreads and volatility.

I also think it’s too early to tell whether the rally is over or is going to continue.  IF this is indeed a start of the bull rally, I waited too patiently for this to come (while taking losses on some positions using “stop-loss”).

At the end of the day though, I’m prepared to take some losses and move on tomorrow, especially w/ risky Citi (C) that failed to rally for the 2nd day.

So I’ve ditched oil yesterday and glad I did since it’s starting to pull back.   However I think there’s plenty of opportunities to make money from the oil ETFs in the near future.  The March 15th OPEC meeting should play some role in the volatility and the recent rally has broken the downtrend.  So, if you want to play oil, here are some of the ETFs I’ve tracked and played.

1) UCO – Managed by the popular “ProShares” fund manager, and it’s an ultra ETF that tracks the AIG Oil index 2x (double).  Relatively a new ETF with not too much historical data.  One thing is sure: this thing is VOLATILE.  I’ve traded this in January when it surged almost 100%.  I’ve also held it when it dropped 100% in the recent weeks.

Pros: Volatile if you like it; when it surges, it surges BIG

Cons: When oil goes down, it plummets BIG; long-term value is inferior versus most other ETFs

YTD Performance: -48.43%

2) USO – United States Oil Fund – One of the most popular oil ETFs out there.  It’s less volatile and has a decent long-term price value compared to other ETFs. If you want to hold long-term, go w/ this one.

Pros: Less volatile; decent long-term value

Cons: Less volatile; not as big of a gain as other “ultra” ETFs

YTD Performance: -20.54%

3) DIG -Ultra Oil and Gas – Managed by ProShares again.  This attempts to track DOUBLE the US Oil and Gas index companies which include ExxonMobile, Chevron, Conoco…you get the idea.  It therefore does not really track the oil per se.  I’ve seen days where oil ETFs rallied while DIG lost positions simply because the market itself declined, taking XOM, CVX, COP down with it.

Pros: Not entirely exposed to oil; volatile if you like it

Cons: Volatile; poor long-term value due to the nature of Ultra ETF’s “time decay”

YTD Performance: -31.39%

4) ERX – Direxion Energy Bull 3X- Haven’t followed too much of this but this one tracks oil by 3x…yes..not double but THREE times.   So yes it’s very crazily volatile.  If you like the volatility, this is it.

Pros: Volatile; Own ERX during oil rally = rich

Cons: Very poor long-term value; Weak stomach during decline = throw up over and over and maybe even in front of your boss and get fired.

YTD Performance: -47.41%

Bottom line, use your best judgement and style of investment to choose how to play it.  They all have its uniqueness depending on your strategy (Bull or Bear).  Good luck!