Tactical allocation doesn’t mean strategies must involve complicated algorithms or factor-based solutions. Simply going the other direction with inverse exchange-traded funds (ETFs) can give traders opportunities to realize gains.
In the current market environment, volatility has been a constant. Whether it’s inflation, rising rates, the pandemic, geopolitical concerns, or a confluence of all those factors, markets will move with the 24-hour news cycle.
How volatile have the markets been as of late? The CBOE Volatility Index, or simply the VIX, is up almost 70% this year, highlighting the roller coaster ride stock market investors have been experiencing.
That said, traders don’t have to be bulls to make money when trading a major stock market index such as the S&P 500. The index is down 9% so far this year, thanks to the aforementioned factors causing investors to get jittery.
To profit on the downside in the short term for the S&P 500, traders can use the Direxion Daily S&P 500 Bear 3X ETF (SPXS). SPXS seeks daily investment results equal to 300% of the inverse of the daily performance of the S&P 500 Index.
Capture Bearishness in Bonds
Yields and bond prices move conversely with one another. When market news hits that investors are jittery because yields are rising, it’s an opportune time to trader bearishness in bonds.
One option is to use the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO). Like SPXS, it amplifies exposure to its index with triple the exposure.
Per its fund description, TYO seeks daily investment results before fees and expenses of 300% of the inverse (or opposite) of the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index. The index is a market value-weighted index that includes publicly issued U.S. Treasury securities with a remaining maturity of greater than seven years and less than or equal to ten years.
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