Fear is Again Creating Opportunity in Oil Stocks

Oct 12, 2023

Fear can be an investor’s best friend.

Look at oil prices, for example.

When war broke out between Israel and Hamas, crude oil gushed to a high of $95.03. All in fear Iran could enter the war, which could threaten the Strait of Hormuz.

While those fears still exist, oil prices are starting to back off, as the supply disruptions concerns cool off. In fact, since “No direct oil supplies are impacted by the conflict at the moment so it’s a wait-and-see situation,” said John Kilduff, partner in Again Capital LLC, as quoted by Reuters.

In short, fear sent oil prices gushing higher.

Now, the realization that supply may not be impacted, is taking it back down, which is creating opportunity on the short side of oil. One way to trade the short side of oil is with an inverse ETF, which allows you to profit from the decline of an underlying benchmark.

Unfortunately, when it comes to inverse ETFs for oil, there aren’t many.

But of the ones that exist, here’s what we found.

The UltraShort Bloomberg Crude Oil ETF (SCO), for example, seeks returns that are -2x the return of its underlying benchmark for a single day. So, today, for example, as oil prices begin to pullback, the SCO ETF is gaining momentum.

Or, we can also look at the Direxion Daily S&P Oil & Gas Exploration & Production Bear 2x Shares (DRIP). With an expense ratio of 1.09%, this ETF provides 2x inverse daily exposure to an equal-weighted index of the largest oil and gas exploration and production companies.

It’s just something to keep in mind, if you’re looking for interesting opportunities.

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