| How To Profit From Crashing Oil Markets | |
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To protect themselves in this scenario, investors should consider inverse oil ETFs as a form of crash protection. This sounds simple, but the fact is that many inverse ETFs are lightly traded and can be dangerous since they use leverage. Puts and short selling of oil stocks are a valid investment choice, but those strategies are not for everyone. With that in mind, it’s worth reviewing a few of these ETFs to see how they stack up. Related: Oil Prices Driven Lower By Everything Except Fundamentals One reasonable alternative for investors who want some protection from oil price declines but don’t want to take on too much leverage is the Powershare Crude Short Oil ETN trading under ticker symbol SZO. The security is not leveraged, so it mostly moves one for one with oil prices, but the asset base is relatively small at about $40 million. As a result, it is appropriate for smaller investors looking for a little bit of protection, but larger investors may find themselves distorting the price if they try and buy too many shares. SZO also carries a very reasonable 0.75 percent expense ratio. Another choice with a little bit more liquidity is the ProShares Ultrashort Bloomberg Crude Oil ETF trading under ticker SCO. The security has $170 million in Assets Under Management (AUM), but also has considerably average daily trading volume. SCO has seen a tremendous spike over the last few months, and investors should be rightly wary of putting too much weight on the issue. At the same time, as part of a balanced portfolio, SCO can add a component that is inversely correlated to the broader market, providing a profit when everything else is melting down. The value of such an inverse security was obvious on Monday when, as the rest of the market melted down, SCO was up more than 11 percent. SCO carries a 0.95 percent expense ratio. Related: Why Today’s Oil Bust Is Not Like The 1980s |
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