As rumors from Europe seem to cause the markets to fluctuate wildly from day to day, volatility seems to be the zeitgeist. In this atmosphere, leveraged ETFs can provide a savvy investor with a tool to harness the volatility of the markets, particularly those wishing to place bets on the broader market trends in both the short and long term. Leveraged ETFs, which are linked to indices and seek to grow or contract at two or three times the movement of the index as a whole, can offer investors an opportunity to make major gains (or suffer major losses) by ramping up the volatility of the markets even further.
Leveraged ETFs from Major Indices
For every major index, there are ETFs leveraged up to three times the index value on both the long and the short end.
S&P 500 ETFs: The ProShares UltraPro S&P500 (UPRO) seeks a result of three times the daily return of the S&P 500, and the ProShares Ultra S&P 500 (SSO) seeks two times the daily return on the S&P. Meanwhile, for the bears out there ProShares UltraPro Short S&P500 (SPXU) seeks three times the inverse of the S&P 500 and the ProShares UltraShort S&P 500 (SDS) seeks to move twice the inverse of the S&P.
Dow Jones Industrial Average ETFs: ProShares UltraPro Dow30 (UDOW) seeks to garner a return of three times the daily movement of the DJIA and the ProShares Ultra Dow30 (DDM) seeks to show returns of double the Dow’s daily movement. On the flip side, the ProShares UltraPro Short Dow30 (SDOW) seeks return of three times the inverse of the Dow and the ProShares UltraShort Dow30 (DXD) seeks a return of two times the inverse of the Dow.
Nasdaq: For going long there’s ProShares UltraPro QQQ (TQQQ), which seeks a return of three times the daily movement of the Nasdaq, and ProShares Ultra QQQ (QLD), which seeks a return double the shift in the Nasdaq. For going short there’s the ProShares UltraPro Short QQQ (SQQQ) to move three times the inverse of the Nasdaq on the day and ProShares UltraShort QQQ (QID) for shorting the day by a factor of two.
MSCI EAFE: The Direxion Daily Developed Bull 3X Shares (DZK) seeks to move three times the daily return of the index, and the ProShares Ultra MSCI EAFE (EFO) seeks to double the market’s daily move. On the short side, the Direxion Daily Developed Markets Bear 3X Shares (DPK) should triple the inverse of the MSCI EAFE index’s daily move and ProShares UltraShort MSCI EAFE (EFU) should double the inverse.
Big Opportunities, Risks for the Daring Investor
For the investor who revels in market volatility and/or wants to boldly speculate on broad market trends, leveraged ETFs provide an excellent opportunity for both long and short bets that can show either major returns or massive losses. The opportunity to see values rise or fall at double or even triple the rates of the markets make for much larger shifts in value, and any investor who likes the current market volatility so much that they want more has just the avenue to find it.
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