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Flaring Tensions With Iran Could Spark This Geared Oil ETN

ETF Professor

Oil prices surged Friday a U.S. airstrike killed General Qassem Soleimani, the head of Iran’s elite Quds, a move that sparked rebuke from some Democrats and promises of retaliatory action from Iran.

What Happened

Perhaps surprisingly, oil equities, such as Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) didn't go along for the ride as is often the case when geopolitical tensions flare up in the Middle East.

Should hostilities between the U.S. and Iran, a member of the Organization of Petroleum Exporting Countries escalate, oil stocks could move higher and that would benefit the MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NYSE: NRGU).

Part of a family of five “big oil” ETNs, including a double-leveraged bullish fund and three bearish products, NRGU features exposure to the 10 largest U.S.-based oil companies by market value, including Exxon and Chevron.

See Also: Experts On How To Trade Oil After Fatal Airstrike Against Iranian General

Why It's Important

“The Defense Department blamed Soleimani for the deaths of hundreds of Americans, and said he was behind recent attacks on coalition bases in Iraq, including one on December 27 that killed an American defense contractor,” reports CBS News.

With the White House reveling in Soleimani's death and Tehran promising retribution, NRGU could be in the spotlight over the near-term.

NRGU is designed to deliver triple the daily performance of the Solactive MicroSectors U.S. Big Oil Index. The 10 stocks in the benchmark are equally weighted to the tune of 10% apiece.

For tactical traders looking beyond the Iranian controversy, NRGU could have some utility this year because many analysts view the energy sector as attractively valued and primed to outperform after ranking as the worst-performing S&P 500 group last year.

What's Next

As is always the case with geared instruments, it's good to have choices and for trader to prepare for the fact that their initial thesis could be wrong.

MicroSectors has that based covered as it pertains to NRGU in the form of the MicroSectors U.S. Big Oil Index -3X Leveraged ETN (NYSE: NRGD), the triple-leveraged inverse equivalent of NRGU.

Should oil rise without names like Exxon and Chevron following suit, NRGD could be the biggest beneficiary of the current calamity with Iran.

Photo credit: Adam Jones, Flickr

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