SCO Explained: Structure, Risks and Who Should Use This Inverse 2x Crude Oil ETF

ProShares UltraShort Bloomberg Crude Oil (SCO) is an inverse 2x leveraged exchange-traded fund designed to deliver approximately -200% of the daily return of the Bloomberg WTI Crude Oil Subindex. SCO achieves this exposure primarily through derivatives such as futures contracts and swap agreements, combined with cash and short-term fixed income holdings that serve as collateral. Because the fund targets daily performance, it rebalances each trading day to maintain its -2x leverage target.

That daily reset is central to understanding where SCO fits in an investor’s toolbox. Over short periods, SCO can effectively amplify bearish views on crude oil prices or act as a tactical hedge against a portfolio sensitive to rising oil risk. However, over longer horizons the fund is subject to path dependence: volatility drag and compounding effects can make multi-day returns diverge materially from -2x the cumulative change in the underlying index. Contango and backwardation in the futures curve also affect returns because the fund must roll futures contracts, incurring gains or losses depending on the curve’s shape.

Key costs and mechanics include an expense ratio (check the current prospectus for the latest figure), financing costs associated with maintaining leveraged short positions, and transaction/frictional costs from daily rebalancing. These elements reduce expected returns over time and magnify the impact of intraday volatility.

Given these features, SCO is typically most suitable for experienced traders and institutional users seeking short-term directional exposure or hedging solutions. It is generally not appropriate for buy-and-hold investors, retirement accounts with long horizons, or those unfamiliar with leverage and derivatives. Risk management techniques — strict position sizing, stop-losses, and frequent monitoring — are essential when using SCO.

Alternatives for investors with different horizons include long-only crude oil ETFs, crude futures, or options strategies that offer more controlled exposures. Before allocating to SCO, investors should read the prospectus, understand daily rebalancing dynamics, and consider how volatility, futures roll costs, and leverage may influence outcomes on multi-day timeframes.