Someone Is Betting On These Wild Energy ETF

The energy sector, the seventh-largest sector weight in the S&P 500, is the worst-performing group in the benchmark U.S. equity index this year and some corners of the energy patch have been much worse than others.

For example, refining stocks have benefit from slumping oil prices, which help boost refiners' margins. Integrated oil names have not been stellar, but they have easily outperformed oil services equities. Exploration and production have been among the most repudiated energy equities. The 36.5 percent tumble by the SPDR S&P Oil & Gas Exploration & Production ETF XOP confirms as much.

XOP, a $1.68 billion equal-weight ETF, historically displays a somewhat tight correlation to oil futures and that clearly has not been a positive trait in 2015. As the United States Oil Fund USO, which tracks West Texas Intermediate futures, has slumped 44.7 percent, XOP has been unable to avoid the carnage.

Combine that with the fact that energy earnings estimates for 2016 are contracting and market observers expect oil supply to continue outpacing demand and it would appear next year could be another rocky one for exploration and production equities. With those factors in mind, it would appear curious that traders are betting on XOP's leveraged equivalent. 

However, that is exactly what is going on this month. Since the start of December, the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares GUSH has added nearly $13 million in new assets. That is surprising given XOP's dismal performance through the first 11 months of the year. Even more surprising is that GUSH is attracting new assets as it continues tumbling.

Entering Tuesday, GUSH, which attempts to deliver triple the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index, was sporting a month-to-date loss of nearly 51 percent. That was good for the second-worst showing among all Direxion leveraged bull ETFs in December. Conversely, GUSH's bearish equivalent, the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares DRIP, was Direxion's best leveraged bear ETF.

As Direxion data indicate, GUSH has averaged daily creation activity of over $566,000 over the past 30 days, meaning traders have been stepping into the fun. Not only that, but GUSH's volume has modestly risen. For the five days ending Dec. 28, GUSH's volume was nearly 17 percent higher than the trailing 20-day average, according to Direxion data.