More investors are taking advantage of volatility and wide market oscillations with leveraged and inverse exchange traded funds to quickly capitalize on quick turns.
ETF investors bet big on triple-leveraged products Tuesday, anticipating a robust rebound after the back-to-back sell off, reports Michael P Regan for Bloomberg.
For instance, the ProShares UltraPro QQQ (NasdaqGM: TQQQ), which takes the 3x or 300% daily performance of the Nasdaq-100 Index, saw $155.2 million in net inflows Tuesday, or about 12% of the fund’s total market cap.
Additionally, the ProShares UltraPro S&P500 (NYSEArca: UPRO), which tracks the 3x or 300% performance of the S&P 500, experienced $83.1 million in inflows, or about 12% of its total market cap.
The slightly more conservative trader funneled $150.7 million into the the ProShares Ultra S&P 500 ETF (NYSEArca: SSO), which reflects the 2x or 200% daily performance of the S&P 500, or about 10% of the fund’s total market cap.
Regan also pointed out that there is a chance that some traders may have been throwing money into these leveraged ETFs to short the securities. However, short interest remains muted – for example, bets against TQQQ were at 0.9% of shares outstanding but way below the two-year high of 2.6% last month. Short interest on other leveraged stock ETFs also paint a similar picture.
On the other side of the trade, traders who utilized inverse ETFs to ride the bearish turn are trimming their bets. The ProShares UltraPro Short S&P 500 ETF (NYSEArca: SPXU), which also takes the inverse 3x or -300% daily performance of the S&P 500, saw 8% of its market cap flow out Tuesday.
Nevertheless, not all investors threw caution to the wind and tried to bet the farm on a rebound Wednesday. For instance, the ProShares Short S&P500 (NYSEArca: SH), which takes a simple inverse or -100% daily performance of the S&P 500 index, saw an additional $110.9 million in inflows Tuesday. The increased interest in SH suggests that some traders are still hedging against further pain in the equities market with short position. [Inverse Stock ETFs to Hedge Further Pain]
Potential investors should be aware that these types of leveraged investments come with significant risks. While the ETFs may juice returns, investors are also exposed to potentially increased losses.
For more information on leveraged funds, visit our leveraged ETFs category.
Max Chen contributed to this article.