Playing The Volatility With Leveraged ETFs (AA, BA, GE, DPK, TZA, MWN, DZK, TNA, MWJ)
It’s been a choppy summer for stocks, and the benchmarks went on another notable nose-dive on Wednesday. The Dow is off by over -200 points, with Alcoa (AA), Boeing (BA), and General Electric (GE) leading the decline, and as of this writing, the Bond ETFs Index is the only winner among tickerspy’s more than 270 proprietary stock Indexes. Meanwhile, there are big gains to be had in another exchange-traded sector.
Currently, nine Leveraged ETFs Index components are ahead by more than 8% as stocks make fresh intraday lows. These “reverse” ETFs are designed to track the inverse performance of a particular benchmark or segment, and many use leverage to amplify returns by as much as 300%.
Today’s top performers include the Developed Markets Bear 3X Shares (DPK), Direxion Shares ETF Trust Small Cap Bear 3x (TZA), and Mid Cap Bear 3X Shares (MWN), where shares are surging by more than 9%. These 3x leveraged ETFs are designed to track triple the inverse of their respective segments, as described by their provider. Given the extreme volatility among such highly leveraged securities, they are only recommended for short term trading by experienced investors.
On the long of the trade, the Developed Markets Bull 3X Shares (DZK), Direxion Shares ETF Trust Small Cap Bull 3x (TNA), and Mid Cap Bull 3X Shares (MWJ) are all off by more than -9% on the day. Again, high leverage translates to big losses for bullish ETFs on a down day, but traders looking for bounce plays on various corners of the equity markets can utilize these securities to win big in a rebound.
It will be interesting to see whether the bulls can recover after Wednesday’s beating or if economic worries will send stocks lower from here. In either case, investors can track the Leveraged ETFs Index for performance trends and a suite of other metrics at tickerspy.com.
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