Direxion leveraged and inverse ETFs are a tactical trade idea for sophisticated traders looking to express an opinion on volatility.
Expanding on the need to closely monitor leveraged and inverse ETF trades, Luke Carlson, Director of Business Development & Partner at QST Capital, highlighted the wide peak and troughs among bearish market conditions. For instance, in the most recent 2008 financial downturn, markets experienced a 56% decline from peak to trough. Consequently, Carlson argued that it is more prudent to utilize these types of products to hedge a part of a portfolio.
“Don’t focus on achieving 100% of upside. Capture a portion,” Carlson said.
Moreover, Kyle Shealer, Chief Investment Officer & Partner at QST Capital, advised investors to maintain an unbiased or rules-based approach with leveraged and inverse ETFs so as to limit emotional trades that could do more harm than good.
Looking at current market conditions, traders may have targeted the financials segment as the Federal Reserve looks to hike interest rates and the Trump administration promises deregulation and tax cuts. Traders seeking to capitalize on the shifts may look to short-term options like the Direxion Daily Financial Bull 3X Shares (NYSEArca: FAS) and Direxion Daily Financial Bear 3X Shares (NYSEArca: FAZ).
Jablonski pointed to leveraged and inverse Treasury ETFs, like the Direxion Daily 20+ Year Treasury Bull 3x Shares ETF (NYSEArca: TMF) and Direxion Daily 20+ Year Treasury Bear 3x Shares ETF (NYSEArca: TMV), for short-term and long-term hedging with changes in the fixed-income landscape. For instance, a 1% rise in interest rates would be more detrimental to longer duration bond positions, so investors may implement an inverse hedge for a rising rate environment.
The overvaluation of FANG stocks, which led to a sharp sell off in June, has revealed an opportunity in tech names. The technology sector has been among the best performing areas of the market this year as growth- and momentum-driven stocks lead the post election rally. However, as we recently witnessed, the Direxion Daily Technology Bear 3X Shares (NYSEArca: TECS) and Direxion Daily Technology Bull 3X Shares (NYSEArca: TECL) could help traders ride the twists and turns in the technology sector.
Additionally, the Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (NYSEArca: GUSH) and Direxion Daily S&P Oil & Gas Exploration & Production Bear Shares (NYSEArca: DRIP) can help traders gain exposure to the swings in the crude oil industry after oil prices plunged and seek to consolidate in light of ongoing concerns over a global supply glut.
Financial advisors who are interested in learning more about alternative tactical investment strategies can watch the webcast here on demand.