Day traders understand the importance of having a plethora of tools at one’s disposal when it comes to taking a piece of flesh out of the markets. One of the tools they shouldn’t forget about, if they aren’t using it already, is single inverse exchange-traded funds (ETFs).
In essence, single inverse funds provide day traders with the necessary short-term exposure along with the feasibility and dynamic features of an ETF. Per the Direxion website, “single inverse ETFs are trading tools that allow investors to either seek profit or seek to apply a hedge for an existing portfolio position that they anticipate will experience negative returns, in the short term.”
Single inverse ETFs offer:
- investors a tactical trading alternative to selling out of an existing position and creating a taxable event.
- leverage, which means that compounding is less magnified compared to leveraged inverse ETFs.
Inverse ETFs are designed to move in the opposite direction of their benchmarks on a daily basis, and should not be expected to track their underlying indexes over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand the consequences of seeking daily inverse investment results and intend to actively manage their investments.
An Opportunity for SPDN
One particular fund investors could utilize for broad market inverse exposure is the Direxion Daily S&P 500 Bear 1X Shares (SPDN ). With the recent market rally in the S&P 500, what goes up must eventually succumb to the law of physics—as such, when it heads downward, the SPDN could be a prime option to reap some gains.
Riding a wave of optimism from the economy re-opening, the S&P 500 just finished a 50-day stretch up 37.7%. Sounds all good for the bulls when you’re in the throes of a market run higher, but bears are salivating at the opportunity when the markets eventually take a breather.
“The enthusiasm in markets at the moment is bordering on euphoria,” ForexLive analyst Adam Button wrote in a note Thursday, according to a MarketWatch report. “Retail money is pouring into the flavor-of-the-day and now FOMO is taking over more broadly. You have to decide if you’re in or out.”
Bulls fed off the most recent unemployment numbers—the Bureau of Labor Statistics (BLS) reported that the official unemployment rate for May was 13.3 percent, down 1.4 percent from April’s rate of 14.7 percent.
“The choice you have to make is either believe in the bull case or get on the sidelines because this party is just starting,” Button wrote. “Of course it will end in tears and there will be an ebb and flow, but unless virus numbers start to spike, it’s not going to end soon.”
However, it won’t be the bears crying if they use single inverse funds like SPDN effectively.