Leveraged ETFs are volatile instruments and as such are not intended for use by all investors. Inverse though not leveraged ETFs, such as the Direxion Daily S&P 500 Bear 1x Shares ETF (NYSEArca: SPDN), can help investors hedge long positions or profit from downside in broader markets without taking on the risks associated with leveraged ETFs.
The Direxion Daily S&P 500 Bear 1x Shares ETF aims to deliver the daily inverse performance of the S&P 500, meaning that if the S&P 500 falls by 1% on a particular trading day, SPDN should rise by the same amount.
Entering Monday, the S&P 500 was up more than 6% year-to-date, a rally some traders believe is a case of too much too fast. That could be a sign SPDN could be a useful short-term trade.
“The market has seemingly done a complete about-face following the bloodbath that was the waning months of 2018. Since the December 26th session, the S&P 500 finished higher 14 of 16 trading days and recaptured nearly half of the losses it sustained by its December 24th low,” said Direxion in a recent note.
SPDN offers some advantages relative to leveraged ETFs. Obviously, SPDN’s short-term gains will not be as magnified as a leveraged rival’s when markets decline, but without the introduction of leverage, SPDN can deliver on its stated objective for longer periods than a leveraged ETF. Since October, SPDN and the S&P 500 are close to parity, notes Direxion.