Direxion exchange traded funds (ETFs) that triple an investors leverage and exposure to the market entered the market amid raised eyebrows, and have since become an overnight hit. In fact, these ETFs have managed to gain market share amid established competition.

Heather Bell on Index Universe excerpted this coverage from ETFR’s January cover story, where Direxion Vice President and Marketing Director Andy O’Rourke talks about the new line of funds. The triple leveraged ETFs are capable of extreme volatility as they do triple market direction, so volume and liquidity are important for their success. By the end of November, one month after trading began, the eight funds had accumulated a total of more than $510 million in assets. The largest fund, Direxion Large cap Bull 3X Fund (BGU) alone had $195 million, in little under one month.

Investors who want a hedge and are able to stomach the risks would want these types of ETFs in their playbook. The average investor may want to proceed with caution, as these are not buy-and-hold investments and can have huge movements in both directions.

DirexionShares can be employed in three ways:

  • For one, small short-term bets when the markets are volatile, and investors are on the sidelines in cash.
  • When the market takes off and you haven’t jumped on the bandwagon, these ETFs can hlep you catch up. Triple leverage equals quick exposure.
  • As hedging tools that will fill a void, these ETFs can help. Good, low-cost market exposure for specialized needs are what these funds can aim at.

Just watch those trend lines and have an exit strategy.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.