Ahead Of Earnings, Traders Nibble At This Energy ETF

This week's avalanche of third-quarter earnings report is dominated by the financial services and healthcare sectors, among others. That is not stopping some traders from positioning in sectors with upcoming earnings updates.

Energy is one of those sector as data indicate some traders are moving into leveraged exchange traded funds tracking volatile exploration and production stocks.

What Happened

One of those funds is the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares GUSH. GUSH looks to deliver triple the daily returns of the S&P Oil & Gas Exploration & Production Select Industry Index (SPSIOPTR).

With oil ranking as one of this year's best-performing commodities, the S&P Oil & Gas Exploration & Production Select Industry Index is up 12.64 percent year-to-date, but crude has retreated in recent days, sending that index lower by more than 4 percent over the past week.

Why It's Important

None of the stock's in GUSH's underlying index report earnings next, but that party does get started in a big way next week. For the week ending Oct. 26, nearly 23 percent of the stocks in GUSH's underlying benchmark report earnings. The following, that number jumps to 46.15 percent, according to Direxion data.

Net profit margins for the energy sector in the third quarter are expected to be 7.10 percent, according to FactSet data. That is lower than all but one sector (consumer staples), but above the energy sector's five year average of 4.80 percent.

In recent weeks, traders have been embracing the bullish GUSH. Over the past month, the triple-leveraged exploration and production ETF is averaging daily inflows of more than $338,000, according to issuer data.

GUSH's bearish counterpart, the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares DRIP, is averaging modest daily outflows over the same period.

What's Next

Even markets cheer the energy sector's third-quarter earnings reports, a pullback in oil prices would weigh on GUSH while likely lifting the bearish DRIP. Historically, exploration and production stocks are more sensitive to oil price action than are integrated oil equities.

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