DXO - Double-Long Oil

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Dec 26, 2008 2:48 pm

A client of mine got this idea from a friend of a Morgan Stanley broker who says MS is recommending this position.  I'll be honest...I haven't done much due diligence on this one and will welcome any insight into how it works.  I'm assuming that any ETF trading double-long oil contracts or options won't last forever in an oil bear like we have hitting us now, but I don't know at what level this completely washes out, or if it ever completely washes out.  This isn't my forte at all, but it looks intriguing since I don't think below $40 oil will last any longer than above $100 oil did.  If DXO can outlast the bear in oil, it would seem to present a very profitable trade once oil recovers.  Any words of wisdom here?

Dec 26, 2008 5:59 pm

Be careful when using the "double" etf's.  They are designed to track the index on a daily basis, so compounding throws the returns off over any sustained period of time.  Example, oil drops 5%, your etf drops 10%.  Oil goes up 5%, your etf goes up 10%.  You are still down 1%.  Now picture this happening over 2 months.  Double etf's are great when the market is going the direction you want consistently.  Volatility kills the returns even if the general direction is in your favor.  You know what happens if the index goes against you.

Dec 26, 2008 6:24 pm

Type in the symbol on Yahoo finance and read the message board, lots of good info there as to what the risks are and why.

Dec 28, 2008 3:48 pm

ERX - Direxion Funds Triple Energy bull. 

How's that for volatility?