This product tracks the daily performance of the Bloomberg Crude Oil Subindex at a negative multiple. It uses crude oil futures contracts and index-linked derivatives to generate gains when oil prices decline.

It is suited to aggressive, experienced investors who expect a short-term drop in crude oil prices or want to protect an existing energy-related portfolio against downside risk.

Launched by ProShares in 2008, it is a passively managed (index-tracking) ETF.

To replicate the inverse of the index's daily moves, the portfolio is readjusted every day. When oil prices fall, the fund aims to deliver a set multiple of the decline as a gain. Conversely, when oil prices rise, it incurs losses at that multiple.

• Provides leveraged exposure to falling oil prices
• High price sensitivity based on crude oil futures

Assets under management (AUM) stand at $857.5M, and the expense ratio is 0.95% per year.

Because the fund is designed around the index's daily returns, the longer it is held, the more compounding effects and volatility decay can cause its performance to diverge from the stated multiple of the actual decline in oil prices.

It tends to surge when concerns about a global economic slowdown or a crude oil supply glut come to the fore, and it falls very sharply when oil prices rebound, a typical high-risk, high-return pattern.

Speculative trading money flows in actively in response to geopolitical risks in the energy market or shifts in the demand outlook, and trading volume tends to spike when the market's fear gauge rises.

It offers the chance for high returns in a falling oil market, but the combination of leverage and an inverse structure creates a very large risk of value erosion over time.

You can build a portfolio by comparing it with products that track the inverse performance of other commodities, such as KOLD (natural gas), GLL (gold), and ZSL (silver) shown in the table. If you want to bet on rising oil prices, UCO takes the opposite strategy, and if you want standard, unleveraged oil exposure, USO can be an alternative. If you are looking to bet against oil producers, DRIP is also worth considering.

SCO is a sharp tool for riding a wave of falling oil prices. However, holding it for the long term without fully understanding the structural characteristics of leveraged inverse products is very risky.

Because this product is managed on the basis of daily returns, investors must be fully aware that over holding periods of more than a few days, cumulative returns may not match the stated multiple of oil price moves.

It is a useful tool for experienced investors who want an aggressive bet on falling oil prices or a short-term hedge. However, given the structural risks of the product, conservative management that strictly limits position size and holding period is required.