The CBEO Volatility Index, or simply the VIX, is up over 60% this year. Traders looking to trade the S&P 500 can make volatility their friend with a pair of exchange traded funds (ETFs) from Direxion Investments.
Inflation fears have whittled the S&P 500 down after returning close to 27% in a rebound-laden 2021 year following the previous year’s impact of the pandemic. Now, recession risks are factoring into the volatility of the S&P 500, which should give investors potentially more market fluctuations.
“I think there is a very real risk of a recession, it is perhaps inevitable we do have an economic downturn before 2024,” said John Lonski, president of economic forecasting firm Thru the Cycle.
As opposed to simply staying on the sidelines, investors and traders alike can stay tactical with inverse ETFs. By taking the opposite direction of a major index like the S&P 500, it could help hedge against a market downturn by complementing a long-only portfolio versus staying in a safe haven asset like bonds, which have also fallen for most of the year.
2 Ways to Trader S&P 500 Volatility
Down about 20% year-to-date, whether the S&P 500 can climb out of its funk this year is anybody’s guess. In the meantime, there will be ebbs and flows on the way back to positive territory or further down depending on what happens in the second half of the year.
For bears, consider the Direxion Daily S&P 500 Bear 3X ETF (SPXS), which seeks daily investment results equal to 300% of the inverse of the daily performance of the S&P 500 Index. The fund, under normal circumstances, invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse (opposite) or short leveraged exposure to the index equal to at least 80% of the fund’s net assets (plus borrowing for investment purposes).
For bullishness, there’s the Direxion Daily S&P 500® Bull 3X Shares ETF (SPXL). Like SPXS, the fund invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments, such as swap agreements and securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.
For more news, information, and strategy, visit the Leveraged & Inverse Channel.