This article was originally published on ETFTrends.com.
With October here, third-quarter earnings season is right around the corner. That could bring opportunities with leveraged exchange traded funds, which are ideally suite for aggressive traders looking to trade around short-term events, such as earnings reports.
The financial services sector, as it does every quarter, gets the third-quarter reporting season rolling this year. The financial services sector has had its shares of struggles this year, vexing investors even as interest rates rise and members of the sector report strong earnings.
However, the sector has recently perked up and that could be a sign of short-term opportunity with leveraged exchange traded funds, such as the Direxion Daily Financial Bull 3X Shares (FAS) .
FAS seeks to deliver three time the daily performance of the Russell 1000 Financial Services Index. FAS has a bearish counterpart, the Direxion Daily Financial Bear 3X Shares (FAZ) . FAZ attempts to deliver three times the daily inverse performance of the Russell 1000 Financial Services Index.
Why Now For FAS And FAZ
Fund managers argued that banks have already hit peak earnings, pointing to some red flags such as the U.S. Treasury curve flattening as short-term yields rise in response to U.S. rate hikes from the Federal Reserve and long-term yields dip on growth and trade concerns. The flatter yield curve would typically diminish bank profits as they try to profit on the spread – short-term rates affect a bank’s borrowing costs and long-term rates limit how much they can charge on loans.
The week starting Oct. 8 th sees the financial services sector earnings deluge commence. From Oct. 8 th though Oct. 19 th , about 41% of the Russell 1000 Financial Services Index reports third-quarter earnings, according to Direxion. The following two weeks sees over 53% of the index's components report earnings.
In the third quarter, traders pulled $318.44 million from the bullish FAS while allocating $28.66 million to the bearish FAZ.
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