3x Leveraged (Triple) Oil Stock ETF Products

If double leverage isn't enough for you, there are also 3x or triple leveraged ETF products available. Like their 2x counterparts these ETFs should be considered trading vehicles and not long term investments. Like other leveraged ETF products, they are designed to track the single day performance of the underlying oil stock index times 300%.

The Direxion Triple Leveraged Oil ETFs are both based on the Russell 1000 energy sector which consists of a broad swath of oil related companies involved in energy exploration, production and related services such as drilling and transportation. Approximately 71% is made up of non-renewable energy and 29% energy equipment & services.

ERX - Direxion Daily Energy Bull 3x ETF seek daily investment results, before fees and expenses, of 300% of the price performance of the Russell 1000® Energy Index. This fund uses a combination of equities and total return swaps, so the equity portion can generate occassional distributions.

ERX began trading November 6, 2008 and recently had net assets of $209 million and an average daily trading volume of 2.2 million shares which is very liquid for trading.

Annual Expense Ratio is .95% (95 Basis Points)

As you can see by the chart below ERX took such a hit right after it started trading that it took a long time to catch up to the XOI. It still hasn't caught up to DIG at this point.

ERX Performance Since Inception VS DIG and Amex Oil and Gas Index (XOI)

Chart begins on 11/6/2008 first trading date for ERX

ERX Performance Since Inception VS. XLE & XOI

You can see by this next chart why most long term investors should be in the XLE instead of these leveraged funds.  Despite the huge rally the past 6 months the ERX still hasn't caught up to XLE.  So if you don't have excellent timing, you should not consider using a triple leveraged ETF.

Chart begins on 11/6/2008 first trading date of ERX

ERY - Direxion Daily Energy Bear 3x ETFseek daily investment results, before fees and expenses, of -300% of the price performance of the Russell 1000® Energy Index. This ETF uses total return swaps to gain the inverse exposure.  ERY is also sponsored by Direxion and began trading November 6, 2008 the same day as ERX and it recently had net assets of $45 million and an average daily trading volume of 1.2 million shares which is very liquid for trading but not nearly as liquid as ERX.

Annual Expense Ratio is .95% (95 Basis Points)

When you look at the performance of these two ETFs and see they both have underperformed the XLE you have to wonder why so many people trade them? It's for the same reasons as people trade DIG and DUG, they provide tremendous volatility for high beta traders.

Triple Leveraged ETF Trading Opportunities

As you can see by the chart below there have been 3 selloffs in the XOI that have created 3 substantial pops in ERY that traders could've taken advantage of if they were nimble.

 

Chart covers 3/27/2010 to 9/27/2010

The same is true for ERX in the last half of 2010 into 2011.  When you catch a strong trade it's amazing how much money can be made in a short period of time in a Triple Oil ETF. In this case there was a 5 month gain of as much as 165% which far outpaced DIG as well as the XOI.

This is a daily chart from 9/1/2010 to 2/8/2011 for illustrative purposes only.

There was a similar trade in 2009 when things turned around and you can see from this chart that good timing resulted in as much as a 200% gain in ERX.

Chart covers 3/1/2009 to 11/1/2009

This reinforces the fact that similar to futures markets these Double and Triple Oil ETFs may be poor investments over longer time frames but they can produce spectacular short term trading opportunites.  Just make sure you understand the risks before you get involved!