Consequently, leveraged and inverse ETF traders should closely monitor their holdings. Venuto suggests investors should “buy and adjust” and refrain from buying and holding these leveraged and inverse products, especially during volatile conditions.

Investors have utilized leveraged and inverse ETFs in a number of portfolio strategies. For example, Venuto suggests small percentage allocations in inverse leveraged options to hedge mitigate detraction from existing positions, so investors are simultaneously going long and short to hedge risk. Through leveraged and inverse ETFs, investors may help limit portfolio volatility or diminish drawdowns in the event of a steep market correction.


Jablonski also pointed to a number of popular short and long plays that have recently cropped up. For example, the Direxion 2x Daily CSI 300 China A Share ETF (NYSEArca: CHAU), which tracks the leveraged 200% position on China A-shares, and the Direxion Daily CSI 300 China A Share Bear 1x Shares (NYSEArca: CHAD), which takes the inverse or -100% performance of Chinese A-shares, have grown in popularity as U.S. investors gain greater access to the Chinese A-shares market.

The energy sector has also been gyrating after the plunge in oil prices and recent rebound in crude, especially the oil exploration and production sub-sector, which has been hardest hit during the energy sell-off. Consequently, traders have played the sudden turns in the sub-sector through the relatively new  Direxion Daily S&P Oil & Gas Exploration & Production Bear 3x Shares (NYSEArca: DRIP), which takes the -3x or -300% daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index, and Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (NYSEArca: GUSH), the bullish alternative to DRIP.

After plunging to a 17-year low and somewhat recovering in recent weeks, natural gas has also attracted a lot of attention. The Direxion Daily Natural Gas Related Bear 3X Shares (NSYEArca: GASX) has previously been a popular bet to capitalize on the misfortunes in the natgas market, but the long Direxion Daily Natural Gas Related Bull 3X (NYSEArca: GASL) has quickly gained traction as investors rode the recent rally.

Looking ahead, the Direxion Daily 20-Year Treasury Bear 3X (NYSEArca: TMV), which takes the inverse -3x or -300% daily performance of the NYSE 20 Year Plus Treasury Bond Index, could also be a great way to play a rising interest rate environment as the Federal Reserve contemplates higher rates.

Financial advisors who are interested in learning more about implementing leveraged and inverse ETF strategies can listen to the webcast here on demand.