If you’re expecting a quick rebound in the price of oil, there may be better and more direct options than investing through major producers such as Chevron (CVX) or Occidental Petroleum (OXY).
Here are the top three investment vehicles that will benefit immensely should oil reverse its slide.
1.) VelocityShares 3x Long Crude Oil ETN (UWTI)
While leveraged ETFs are typically a bad idea (especially when you hold on for the long term), there are some opportunities to play short-term moves. For example, when crude rebounded from $38 to $48 in late August, this ETN nearly doubled, going from $0.75 to a tad over $1.40.
Just be careful when holding more than a few days, as the compounding effect can strip you of some otherwise obvious gains.
2. Write UltraShort Bloomberg Crude Oil (SCO) calls
This is a good choice for those interested in options. The Jan. 20, 2017, $90 calls trade for around $30. By writing calls, you generate a fairly significant amount of immediate income and will benefit if oil stabilizes or rebounds. The long-term degrading compounding effect is also in your favor.
3. Small-Cap Oil ETFs
While most major ETFs such as the Energy Select Sector SPDR (XLE) hold over 80% in large- and mega-cap energy stocks, small-cap energy ETFs have shown a consistent and historical ability to massively outperform in upwards markets.
The two best options are the PowerShares S&P SmallCap Energy Portfolio (PSCE) and the IQ Global Oil Small Cap ETF (IOIL). Both include a blend of smaller companies that engage in energy infrastructure and actual producers and distributors. The PowerShares ETF tracks the S&P SmallCap 600 Capped Energy Index while the IQ ETF follows a customized IQ Global Oil Small Cap Index, which includes global small-cap oil companies.
