ProShares SCO Stock Down 62% in a Year—Why Do Traders Keep Coming Back?

Following a trading session that saw it fluctuate between $7.56 and $8.78—a nearly 16% intraday range that would make a cryptocurrency blush—SCO stock finished at $8.55 on April 8. That kind of volatility isn’t a flaw for a financial instrument that is intended to deliver exactly two times the daily return of West Texas Intermediate crude oil futures; rather, it’s the whole point. H

owever, observing SCO’s price movement over the previous 12 months indicates something more sinister than straightforward market dynamics. This fund manages to hold more than $1 billion in assets despite losing money with a consistency that verges on mathematical certainty. This paradox reveals something intriguing about the way traders think—or maybe don’t think.

ProShares UltraShort Bloomberg Crude Oil (SCO) – Key Information

The 52-week chart for the fund resembles a slow-motion train disaster. SCO momentarily reached $24.52 a year ago as oil prices fell and traders poured in to wager on more drops. Despite multiple times when oil did, in fact, decline, it has lost over 65% of its value and is currently trading at $8.55. Few retail traders properly comprehend the daily rebalancing mechanisms that cause this discrepancy between what SCO is meant to achieve and what it actually delivers over time. Regardless of whether oil moves up, down, or sideways, the fund resets its exposure every evening to reach negative two times the movement of the oil price the following day. This process mathematically erodes value when held for more than 24 hours.

On April 8, trading volume reached 99.03 million shares, more than double the daily average of 49.43 million, indicating either aggressive speculation or panic selling—possibly both. A particular type of trader is drawn to SCO: those who are certain that oil prices are going to plummet and who are prepared to employ leverage to strengthen their belief. The issue is that conviction, no matter how strong, does not alter the fact that SCO is a deteriorating tool by design. You’re battling time deterioration if you hold it for a week. If you hold it for a month, you will almost certainly lose money unless oil starts to decline steadily and doesn’t rebound—a situation that rarely occurs in commodity markets.

The structural losses built into the fund’s daily reset process make the expense ratio of 1.10% seem almost insignificant. With over $1 billion in assets, ProShares collects its fees regardless of performance, which means that the fund manager receives almost $11 million a year for maintaining what is essentially a financial product that gradually reduces shareholder value. ProShares may see SCO as a service for experienced traders who are aware of the risks, but the retail participation indicates that many customers don’t realize what they’re getting into until it’s too late.

SCO’s operations are grimly efficient. The fund declines twice as quickly when oil prices rise. The fund increases twice as quickly as oil prices decline, but just for that one day. Even if oil ends the week flat, SCO investors will still lose money because of compounding effects if you put together a sequence of alternating up and down days. No amount of market timing will completely eliminate this mathematical drain, which is volatility drag in its most basic form unless you are trading intraday and leaving before the close. The majority of SCO holders don’t do it. They watch their positions deteriorate in ways that seem personal but are really just mathematical as they hold overnight, sometimes for days or weeks.

The fund’s popularity during the volatility of the oil market says something about the appeal of leverage and human nature. When oil prices rise above what appears to be sustainable, it makes sense to bet against it, and the prospect of doubling returns makes SCO appear like a simple victory. However, commodities markets are not linear, and inverse leveraged positions suffer disproportionately from every increase in oil prices, even brief ones. Even while oil did drop over some of that time, the trader who purchased SCO at $24, thinking it would plummet to $50, has seen their position collapse. The timing had to be flawless, yet flawless timing is not a reality that anyone regularly attains—it’s a fiction promoted by backtests.

Institutional investors mainly use SCO as a hedging strategy or for tactical intraday positioning, and they know better than to keep it for more than a trading day. In contrast, retail traders buy and hold it based on macro perspectives of energy markets, OPEC output cuts, or geopolitical issues, much like they would a stock. The majority of the losses stem from the mismatch between the intended and actual use of SCO. ProShares makes this explicit in the prospectus, but when leverage offers rapid gains, warnings are seldom followed and prospectuses are rarely read.

Bearish traders have found the oil markets themselves to be anything but helpful. For months, WTI crude has fluctuated in an annoyingly small range, grinding sideways with enough intraday volatility to maintain the SCO losing value rather than collapsing or rising. Both bulls and bears are losing money on leveraged bets due to the lack of a prolonged directional move, but SCO holders are losing more quickly because of the structural headwinds. In this type of market scenario, doing nothing would have been the winning trade, but leverage instruments like SCO make it difficult to do nothing; they require action even when it is the worst course of action.

The fund’s seven holdings, which include collateral instruments and futures contracts, are managed with such accuracy that the deterioration seems almost deliberate, even though it’s just arithmetic doing what math does. This is simply a product operating as intended in a market that won’t comply with directional bets; there is no conspiracy or malevolent intent. Even after suffering repeated losses, traders continue to return to SCO because the prospect of catching a significant oil selloff and doubling returns overnight is too alluring to ignore. More than any fundamental analysis, that hope is what keeps SCO’s assets above $1 billion, even in the face of a performance record that begs you to “stay away.”

As of right now, SCO is trading at $8.55, which is closer to its 52-week low than its peak. This is a monument to the risks associated with leveraged inverse products and the unwavering conviction that the trade will succeed this time. Perhaps it will. Tomorrow, demand may vanish, OPEC may break up, or oil prices may plummet. Even yet, holding SCO for more than one trading session is still a wager against mathematics, which has a flawless winning streak.