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ERX And Others Trim Exposure- NRGU And NRGD Are Still Triple Leveraged Products


  • Leverage in a highly volatile environment presents lots of challenges.
  • ERX, ERY, GUSH, and DRIP go from triple to double leveraged products.
  • NRGU and NRGD continue to offer three times exposure to oil stock products.
  • A dangerous game that is only appropriate for intraday or very short-term risk positions.
  • A comparison of net assets, volumes and expense ratios as of April 30.
  • Looking for more stock ideas like this one? Get them exclusively at Hecht Commodity Report. Get started today »

In 2019 and early 2020, the energy sector in the equities market was a laggard. As stocks moved to new record peaks, energy-related companies did not participate in the rally. Moreover, when the price of crude oil climbed to the upside, the shares of oil companies and related energy businesses did not appreciate to the same extent. In hindsight, which is always twenty-twenty, the oil shares were sending an ominous signal. On April 20, 2020, the price of nearby crude oil futures on NYMEX fell to its lowest price in history when it traded to negative $40.32 per barrel.

Since oil futures began trading on NYMEX in the 1980s, the price had never traded below the 1986 bottom of $9.75 per barrel. In one day, on April 20, the price made a new low, fell through zero, and declined to below negative forty dollars per barrel. The move caused carnage for the oil companies, market participants with long positions, and many of the derivative products that were not created to withstand such a move. Since April 20, the most active oil ETF product, the United States Oil Fund (USO), has already undergone almost daily changes in the hedging structure that allows the product to fulfill its goal of replicating the price action in the NYMEX futures market.

The leveraged products that track the prices of energy-related shares have also undergone changes over the past weeks and months given the price action in the shares of energy companies. ERX and ERY, as well as GUSH and DRIP, were formerly triple leveraged products. Today, they provide only double leverage. The only triple-leveraged products in oil shares today are the MicroSectors US Big Oil Index 3X Leveraged ETN product (NRGU) and its bearish counterpart (NRGD). However, both of these highly geared

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This article was written by

Andrew Hecht profile picture

Andrew Hecht is a 35-year Wall Street veteran covering commodities and precious metals.

He runs the investing group The Hecht Commodity Report, one of the most comprehensive commodities services available. It covers the market movements of 20 different commodities and provides bullish, bearish and neutral calls; directional trading recommendations, and actionable ideas for traders. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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