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.
What’s Next?
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.
“Both the index and the bear fund are again approaching a cross at their 2018 starting prices,” according to Direxion. “Bear in mind that CBOE’s volatility index is still about where it was through October and November, 2018, which coincided with some of the market’s biggest down days of the year. As in previous months with heightened volatility, it might not be entirely odd to see similar dramatic volatility in the months to come, as buyers and sellers fight it out as to whether to dig further out of the 2018 hole.”
SPDN may offer traders some opportunities over the near-term because there are still issues that could vex long investors.
“The point is, the market isn’t out of the woods yet. Lagging signals like economic data and corporate data might not be showing the effects of all of these events, but it’s hard to believe the bill won’t come soon,” said Direxion.
For more on leveraged and inverse ETFs, please visit our Leveraged & Inverse ETFs Channel.