Don’t worry. The “curse” largely boils down to Iran War’s impact on renewable energy stocks. On the other hand, the conflict has been a gift to traditional fossil fuels equities, explaining why the energy sector is the best-performing group in the S&P 500 this year.

Indeed, the war and related headlines put a spotlight on oil equities and ETFs such as the Direxion Daily Energy Bull 2X ETF (ERX) and the Direxion Daily Energy Bear 2X ETF (ERY). Traders that have tapped ERX and ERY at various points this year know that one day oil prices are surging. These can be rapidly followed up by declining crude prices at the hands of peace deal talks.

“While almost all companies in the sector will benefit, relative performance within the energy sector will depend to an extent on the outcome of the conflict and the impact on the various commodities,” noted research firm Berenberg in a recent note.

The aforementioned and bullish ERX attempts to deliver 200% of the daily returns of the S&P Energy Select Sector Index while the bearish ERY seeks daily returns corresponding to 200% of the daily inverse performance of that gauge. Said another way, both ETFs are credible for short-term views on what comes next in Iran.

Getting Things ‘Strait’ with ERX, ERY

ERX and ERY are not direct plays on crude futures. However, there’s escaping the fact that equities such as Exxon Mobil (XOM) and Chevron (CVX) – two major components in the index tracked by the Direxion ETFs – are surging this year due in large part to the war in Iran.

Volatility surrounding the Strait of Hormuz is driving oil prices higher. That situation is tenuous, often shifting on a day-to-day basis. This indicates that both ERX and ERY remain relevant to tactical traders over the near-term.

“The critical waterway carried around a fifth of the world’s oil and liquefied natural gas before the war. The emerging deal is likely to centre on an agreement between Iran and Oman to establish designated safe shipping lanes through the strait, which separates the two countries,” reported Reuters. “The optimism surrounding the June 17 deal proved largely unfounded after renewed fighting. The market’s hope today is arguably even more questionable. In the past two months, Iran’s hand has strengthened, global refining capacity has shrunk, inventories have been depleted and the number of potentially vulnerable chokepoints has risen.”

Some speculate that even if the Strait reopens, not enough oil would come to market to materially affect prices. Given this, headlines about the Strait reopening may not punish ERX.

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