Best Way to Short Oil

For this reason, the most logical choice to bet on a decline in the price of oil would seem to be the MacroShares Oil Down Tradeable Trust (DCR Quote), which tracks the inverse performance of the long-term trend for oil. This isn't quite the same thing as tracking the inverse performance of spot oil prices, but it's still a directional play. DCR, and its twin the MacroShares Oil Up Tradeable Trust (UCR Quote), are trusts that hold short-term Treasuries and cash equivalents. They work like swaps in that when the Up Trust increases in value, it takes the money from the Down Trust.

Unfortunately, the Up Trust and the Down Trust aren't the hedges they might be because their share prices tend to trade out of line with their net asset value. As of Monday's close, the Down Trust was trading at a 73% premium to its NAV, while Up Trust was trading at a 20% discount to NAV. Robert Tull, managing director of MacroMarkets, says the products take a long-term view of the market and so aren't the best choices for investors trying to capitalize on near-term trends.

But he says investors with a bearish short-term view are better off shorting the Up Trust than buying the Down Trust.