Robinhood Investors Buying UCO In Huge Numbers

Smaller investors are betting big on a recovery in oil prices. They're finally starting to get it.
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Oil has been an incredibly volatile trade over the past two months, but that hasn't stopped investors from trying to buy the dip.

That's especially been the case on Robinhood, where smaller investors have been buying up beaten down and more speculative asset classes with vigor.

Perhaps no trade has gotten more buying interest lately than oil. The ProShares Ultra Bloomberg Crude Oil Fund (UCO) drew virtually no interest on the platform at the beginning of the year, but is now one of the top 50 securities held on Robinhood. It appears in more than 130,000 accounts.

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Their buy-low trade wasn't rewarded for a while. For the year as a whole, UCO is down more than 95% (yes, leveraged products aren't designed to be held for long periods).

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Many Robinhood traders who were buying the dip ended up seeing even further downside. For a brief time, they began unloading UCO positions even as the rebound started occurring, but have since started piling in again.

Since the late April low, UCO has gained 90%.

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Oil has recovered nicely from its crash to more than -$40 per barrel a month ago. Oil prices on the June contract are now above $30 per barrel on optimism for an economic reopening and subsequent recovery as well as an improvement in energy demand.

Right now, I believe most of the near-term upside has been priced into oil. At around $30, risk/reward is fairly balanced and I see only a modest potential for gains here.

I remain neutral on oil prices and have a $24 short-term price target on UCO.

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