ETF to Short Oil Price

Discussion in 'Finance, Investing & Economy' started by CrewDust, Nov 7, 2007.

  1. CrewDust

    CrewDust Member

    May 6, 1999
    Columbus, Ohio
    Club:
    Columbus Crew
    Nat'l Team:
    United States
    I was watching CNBC the other day and there is an ETF that shorts the price of a barrel of oil. Of course it hasn't done well lately but I think oil prices are going to drop soon.

    Problem is, I don't remeber what it's symbol is?

    Anyone know?
     
  2. VFish

    VFish Member+

    Jan 7, 2001
    Atlanta, GA
    Club:
    Atlanta
  3. CrewDust

    CrewDust Member

    May 6, 1999
    Columbus, Ohio
    Club:
    Columbus Crew
    Nat'l Team:
    United States
    Ok, thanks, I'll keep that in mind, but I am confident that oil is going to go down, I think it is at a bubble now.
     
  4. VFish

    VFish Member+

    Jan 7, 2001
    Atlanta, GA
    Club:
    Atlanta
    That’s fine, but be sure you understand how these “paired” investments work. The UP and DOWN funds are coupled, meaning a trade in one requires a corresponding trade in the other. Shares can trade at dramatic premiums and discounts. If you don’t take this into account you could lose money even if you correctly predict the direction of future oil prices.
     
  5. bostonsoccermdl

    bostonsoccermdl Moderator
    Staff Member

    Apr 3, 2002
    Denver, CO
    If you are trying to use a pairs strategy you are basically playing a reversion to the mean with highly correlated stocks..

    Stocks that traditionally mirror each other pricewise, whose prices sometimes stray from each other. Its these price strays where people go long one, and short the other, hoping for an eventualy reversion to normal correlated behavior.

    If you do this, just be sure you have a exit strategy for each trade. In this strategy especially, I have seen people make alot of small gains, then "double down" repeatedly when the prices continued to move away from each other... Then you are left with a larger than normal position, and prices that continue to move away from each ther, basically, causing a huge amount of pain on your portfolio, as well as wiping out all your "small victories" along the way. :(
     
  6. VFish

    VFish Member+

    Jan 7, 2001
    Atlanta, GA
    Club:
    Atlanta
    Here's what I was talking about:

    http://www.thestreet.com/_yahoo/new...ml?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA


    The Best Way To Short Oil

    With so many people so bullish about oil, it might be a good time to think about shorting it. After all, at close to $100 a barrel, the price of crude has nearly doubled this year without a significant pullback.
    ...

    For this reason, the most logical choice to bet on a decline in the price of oil would seem to be the MacroShares Oil Down Tradeable Trust, which tracks the inverse performance of the long-term trend for oil. This isn't quite the same thing as tracking the inverse performance of spot oil prices, but it's still a directional play. DCR, and its twin the MacroShares Oil Up Tradeable Trust, are trusts that hold short-term Treasuries and cash equivalents. They work like swaps in that when the Up Trust increases in value, it takes the money from the Down Trust.

    Unfortunately, the Up Trust and the Down Trust aren't the hedges they might be because their share prices tend to trade out of line with their net asset value. As of Monday's close, the Down Trust was trading at a 73% premium to its NAV, while Up Trust was trading at a 20% discount to NAV. Robert Tull, managing director of MacroMarkets, says the products take a long-term view of the market and so aren't the best choices for investors trying to capitalize on near-term trends.

    But he says investors with a bearish short-term view are better off shorting the Up Trust than buying the Down Trust.


    If DRC shares are trading at a 73% premium :eek: I'd avoid 'em like the plague.

    Good luck.
     
  7. Footer Phooter

    Jul 23, 2000
    Falls Church, VA
    Did you end up doing this? We could use an update.
     
  8. CrewDust

    CrewDust Member

    May 6, 1999
    Columbus, Ohio
    Club:
    Columbus Crew
    Nat'l Team:
    United States
    No, I didn't.
     
  9. Alkena

    Alkena New Member

    Jun 18, 2008
    I've been considering the same Idea, but I want to wait for a spike as an entry point. I am considering Ticker DUG from ProShares. It is designed to move 2x the inverse direction of the Dow Jones Oil & Gas Index. Not a pure play on oil, but it looks highly correlated AND its leveraged (if you have conviction). As for DCR, it's limited float, which has led to it's hefty premium, concerns me. DUG has a 3mo avg volume over 15MM shs vs. 3.85MM for DCR. DUG also has Net Assets of 2.29 $Bln according to Yahoo Finance.
     
  10. VFish

    VFish Member+

    Jan 7, 2001
    Atlanta, GA
    Club:
    Atlanta
    Regarding DCR: http://www.smartmoney.com/stockwatch/index.cfm?story=20080612-playing-peak-oil&a

    :eek:
     
  11. VFish

    VFish Member+

    Jan 7, 2001
    Atlanta, GA
    Club:
    Atlanta
    Good call. I am glad you held on to your money.
     
  12. bostonsoccermdl

    bostonsoccermdl Moderator
    Staff Member

    Apr 3, 2002
    Denver, CO
    Google "exhaustion volume."

    I think its what you are looking at here.
     
  13. Txtriathlete

    Txtriathlete Member

    Aug 6, 2004
    The American Empire
    I like to play airline stocks when I see a drop or spike in oil prices coming. AMR did really well in the recent drop.
     

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