In layman’s terms, un-leveraged inverse and leveraged inverse products are being utilized more and more by advisors and institutions alike for aggressive hedging/short term hedging purposes if not outright short term bull/bear directional trading, and it pays to understand “when” they are appropriate as part of an overall strategy or if they are simply not a fit given one’s goals, and these products are not designed to be “buy and hold.”
With broad market equities turning in an impressive month of January, where the SPX rallied more than 5% (barring today’s finish), it is not particularly surprising to see cautious flows in such products like SDS (note that call buying in this levered inverse product conveys bearish sentiment in the underlying “long” index), and we have documented put accumulation in IWM for the past several weeks during the markets’ climb.
The SPX has been unable to maintain its short term momentum above 1500 (traded as high as 1509.94 yesterday while trading below 1500 today) as well, and this has likely led to portfolio hedgers whom are long but looking to aggressively protect profits (note VIX slow climb back above $14 in recent sessions after trading as low as $12.29) as well as some looking to play a potential equity reversal in the short term in the midst of corporate earnings season.
So with “inverse” products on more radars now than ever, especially of institutional funds that are adeptly engaging in short term technical/trend based (or otherwise) trading to either hedge portfolios against short term swings if not outright speculate on direction, other products that may be exceptionally active in the short term include TZA (Direxion Small Cap Bear 3X, Expense Ratio 0.95%), SPXU (ProShares UltraPro Short S&P 500, Expense Ratio 0.95%), SPXS (Direxion Daily S&P 500 Bear 3X, Expense Ratio 0.95%), and SH (ProShares Short S&P 500, Expense Ratio 0.95%).
For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at [email protected].