U.S. Markets open in 4 hrs 52 mins
  • S&P Futures

    -14.75 (-0.41%)
  • Dow Futures

    -169.00 (-0.57%)
  • Nasdaq Futures

    -0.50 (-0.00%)
  • Russell 2000 Futures

    -14.60 (-0.79%)
  • Crude Oil

    -0.60 (-1.32%)
  • Gold

    -9.30 (-0.52%)
  • Silver

    -0.36 (-1.59%)

    +0.0014 (+0.1198%)
  • 10-Yr Bond

    0.0000 (0.00%)
  • Vix

    +1.15 (+5.41%)

    +0.0005 (+0.0400%)

    +0.1110 (+0.1066%)

    +19.32 (+0.11%)
  • CMC Crypto 200

    +23.40 (+6.93%)
  • FTSE 100

    +22.95 (+0.36%)
  • Nikkei 225

    -211.09 (-0.79%)

How to Profit from Market Volatility Using Inverse & Leveraged ETFs

Market volatility is back. Here is what investors need to know about using inverse & leveraged ETFs to make money from wild swings.
Market volatility is back. Here is what investors need to know about using inverse & leveraged ETFs to make money from wild swings.
  • (1:00) - Inverse and Leveraged ETFs: How To Handle Market Volatility

  • (3:30) - How Long Can You Hold A Inverse Bear ETF?

  • (6:40) - How Do Leveraged an d Inverse ETF Work?

  • (10:00) - Should Investors Expect A Santa Clause Rally This Year?

  • (13:10) - 2019 Positioning For Your Investment Portfolio

  • (17:20) - Newly Launched Direxion Funds: WANT, LACK & NEED

  • (19:30) - Episode Roundup: Podcast@Zacks.com

In this episode of ETF Spotlight, I talk with Sylvia Jablonski, Managing Director at Direxion Investments. Direxion is one of the largest issuers of leveraged and inverse ETFs.

Market volatility is back--making investors nervous about the safety of their holdings. At the same time, traders and sophisticated investors love these sharp gyrations as they get more opportunities to make money using inverse and leveraged ETFs.

First off, we discuss how investors should handle market volatility. Should they try to play the swings?

Sylvia says while short-term pullbacks are great opportunities for traders to make money using inverse and leveraged ETFs, these products be used only by investors who understand them properly and actively monitor them. She uses the examples of the Direxion Daily Technology Bull 3X Shares TECL and the Direxion Daily Regional Banks Bear 3X ETF WDRW that saw big moves recently.

Sylvia then explains how these ETFs work and achieve the exposure using derivatives, typically swaps and futures.

These ETFs are designed to achieve their stated performance goal on a daily basis and their performance can differ significantly from their stated daily performance objectives if held for a longer period Compounding can have both favorable and adverse effects on the returns.

Should inverse ETFs be treated as trading tools or can investors hold them longer to hedge their existing long positions?

Sylvia says while popular inverse ETFs like the Direxion Daily S&P 500 Bear 3X Shares SPXS and the Direxion Daily Small Cap Bear 3X Shares TZA that provide three times  inverse exposure to the S&P 500 index and Russell 2000 Index respectively should be used only by sophisticated investors, the Direxion Daily S&P 500 Bear 1X Shares SPDN can be used by investors who are looking to hedge their long positions. Please listen to the podcast to learn more.

We then talk about the recent market gyrations as trade concerns, peak earnings, rising rates and global growth slowdown continue to rattle investors. Which areas is Sylvia watching closely now? Will we see a Santa Claus rally this year?

Growth and momentum ETFs were clear winners earlier this year but defensive areas of the market have outperformed of late. There has also been some interest in the beaten down emerging market stocks.

How should you position your portfolio for 2019? Sylvia mentions increased interest in some of their defensive bull funds like the Direxion Daily Healthcare Bull 3x Shares CURE. She also likes the Direxion Daily Robotics, Artificial Intelligence & Automation Index Bull 3X Shares UBOT.

We also discuss the four ETFs launched recently by Direxion to reflect GICS realignment-- Consumer Discretionary Bear 3X Shares ETF PASS, Consumer Discretionary Bull 3X Shares ETF WANT, Consumer Staples Bear 3X Shares ETF LACK and Consumer Staples Bull 3X Shares ETF NEED.

Please make sure to listen to the podcast for additional information. You'll definitely feel more comfortable with the idea of leveraged and inverse investing.

Please visit direxioninvestments.com if you want to learn more about these products. Make sure to be on the lookout for the next edition of the ETF Spotlight! If you have any comments or questions, please email podcast@zacks.com.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
DIR-TEC BULL3X (TECL): ETF Research Reports
DIRX-SC BEAR 3X (TZA): ETF Research Reports
DIR-D SP5 BR 3X (SPXS): ETF Research Reports
DIR-D SP5 BR (SPDN): ETF Research Reports
DIR-D CD BULL3X (WANT): ETF Research Reports
DIRX-D HC BL3X (CURE): ETF Research Reports
DIR-D CD BEAR3X (PASS): ETF Research Reports
DIR-D ROBOTICS (UBOT): ETF Research Reports
DIR-D RG BK BR3 (WDRW): ETF Research Reports
DIR-D CS BULL3X (NEED): ETF Research Reports
DIR-D CS BEAR3X (LACK): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research