Spoiler alert: A leveraged exchange-traded fund will be highlighted here, and while the opportunity to be discussed involves the month of September, traders should remember that leveraged ETFs are best used over short-term holding periods, ideally intraday, and should not be held for a month.
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That is particularly true of the fund to be highlighted here, which is especially volatile. Enter the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares (DRIP). Even with its Wednesday decline of about 1 percent, DRIP enters September on a torrid pace. With just one trading day left in August, DRIP has been the second-best of Direxion's leveraged inverse ETFs this month. Perhaps not surprisingly, Direxion's top three leveraged bear ETFs this month, including DRIP, are each inverse energy equity plays.
DRIP attempts to deliver triple the daily inverse returns of the S&P Oil & Gas Exploration & Production Select Industry Index, the most widely followed gauge of exploration and production stocks in the U.S.
Why DRIP In September
In plain English, DRIP is the triple-leveraged inverse answer to the popularSPDR S&P Oil & Gas Exploration & Production ETF (XOP). XOP is already down almost 27 percent year to date as the ETF enters September, a month that is usually unkind to this fund.
Looking ahead, things could get even rougher for XOP, if history repeats. Since inception, the ETF has lost an average of 2.6% in the month of September, according to Schaeffer's quantitative analyst Chris Prybal, marking its worst month of the calendar year, according to Schaeffer's Investment Research.
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Under no circumstances do XOP's September struggles mean DRIP should be held for the entire month, but the former's penchant for ninth-month declines underscores the point that DRIP is an ETF that traders should keep an eye on in the coming weeks.
Some traders are wagering that exploration and production will avoid the September swoon. At least that is one theory based on recent flows data to DRIP's bullish counterpart, the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares (GUSH). Over the past month, GUSH has averaged daily inflows of over $1.4 million, according to Direxion data.
In fact, the Direxion Daily Energy Bull 3X Shares (ERX) and the Direxion Daily Natural Gas Related Bull 3X Shares (GASL) have also been hauling in new assets over the past 30 days. DRIP has some fans, though. That bearish fund has averaged more than $56,000 in daily inflows over the past month, according to issuer data.
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