Reverse ETFs Winning Big As Traders Take Profits (DXD, SDS, QID, TZA, ERY, FAZ, TNA, ERX, TYH)
Friday morning’s weaker-than-expected nonfarm payroll number gave traders an excuse to take some money off the board, sending the Dow down by triple digits. Stocks are still on pace to post gains for the week — thanks largely to a sizable rally on Monday. While relatively few sectors were immune to the sell-off, well-timed reverse ETF trades paid off big.
A look at the Leveraged ETFs Index shows that select components are ahead by 3% or more amid the equity slide. Winners included various exchange-traded plays that track the reverse performance of a particular benchmark or sector.
The Ultrashort Dow30 Proshares (DXD), Ultrashort S&P500 Proshares (SDS), and Ultrashort QQQ Proshares (QID) are all ahead by 2% or more on the day. The ETFs are designed to track twice the inverse of the Dow 30, S&P 500, and Nasdaq 100 respectively. Investors often use these ETFs as a means of hedging long market exposure without selling short or racking up trade commissions by paring existing positions.
Meanwhile, 3x leveraged day-trading ETFs like the Direxion Shares ETF Trust Small Cap Bear 3x (TZA), Direxion Shares ETF Trust Energy Bear 3x (ERY), and Direxion Shares ETF Trust Financial Bear 3x (FAZ) are all ahead by more than 4% on the day. Given their volatility, buy-and-hold investors are advised to stay away from these highly leveraged securities, and a look at the intraday losses of the Direxion Shares ETF Trust Small Cap Bull 3x (TNA), Direxion Shares ETF Trust Energy Bull 3x (ERX), and Technology Bull 3X Shares (TYH) should show why.
Whether hedging long exposure, looking to profit from the market’s losses, or build a complex market-neutral stock-picking portfolio, reverse ETFs be a valuable tool for retail investors. Investors can track the Leveraged ETFs Index for trade ideas in bull and bear markets at tickerspy.com.
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