How to Be Bearish and Bullish (At the Same Time) on Oil and Gas: SCO & IEO

At first glance, you might think it strange that we have both the ProShares UltraShort DJ-UBS Crude Oil ETF (NYSEARCA: SCO), a bearish bet on oil, and the iShares Dow Jones US Oil & Gas Ex Index ETF (NYSEARCA: IEO), a more bullish bet on both domestic oil and gas, in our SmallCap Network Elite Opportunity (SCN EO) portfolio. But there is a method to our apparent madness as one can be both bearish and bullish on oil and/or gas at the same time.

How to Be Bearish on Oil With SCO

The ProShares UltraShort DJ-UBS Crude Oil ETF seeks daily investment results that correspond to two times the inverse (-2x) of the daily performance of the Dow Jones—UBS WTI Crude Oil Subindex which is composed of futures contracts on oil. This means the ETF is a leveraged investment on futures – meaning you need to have a big stomach for risk along with a stop loss order in place. Moreover, the ProShares UltraShort DJ-UBS Crude Oil ETF is down 29% since the start of the year, down 30.3% over the past year and down 78.1% since December 2008.

I should mention that the reason we have added ProShares UltraShort DJ-UBS Crude Oil ETF to our portfolio was due to the price of light sweet crude recently hitting a key technical profit taking level at $108 per barrel – giving short-term traders a potentially good opportunity to short oil. Oil also feel on Monday after poor housing data was reported while some analysts have been saying that the fundamental rules of supply and demand alone do not justify the recent rise in oil plus speculators have been doing their part to push oil prices higher.

How to Be Bullish on Domestic Oil and Gas With IEO

The iShares Dow Jones US Oil & Gas Ex Index ETF seeks investment results that correspond generally to the price and yield performance of the Dow Jones US Select Oil Exploration & Production Index which consists of stocks largely focused on finding and exploiting domestic oil and gas reserves rather than pursuing international opportunities which can come with more risk. The iShares Dow Jones US Oil & Gas Ex Index ETF is up 21.8% since the start of the year, up 26.1% over the past year and up 6% over the past five years.

The reason we have iShares Dow Jones US Oil & Gas Ex Index ETF in our portfolio is simple: The recent discovery of vast deposits of shale oil and gas along with the advancement of fracking technology may not only mean US energy independence but also energy export opportunities.

Share Performance: SCO vs. IEO

Finally, here is a quick look at the performance of the ProShares UltraShort DJ-UBS Crude Oil ETF verses the iShares Dow Jones US Oil & Gas Ex Index:

As you can see from the above chart, betting against oil has not been a winning bet for the long-term. Nevertheless, the chart also indicates that the ProShares UltraShort DJ-UBS Crude Oil ETF is a good way to make short term bets against oil while the  iShares Dow Jones US Oil & Gas Ex Index has been a good long term bet since the end of the financial crisis.

SmallCap Network Elite Opportunity (SCN EO) has an open position in IEO and SCO. To find out what other open positions SCN EO currently has, and to learn why so many traders and investors are relying on this premium subscription service, click here to find out more.