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How to Use Leveraged ETFs Correctly During Market Volatility

May 18, 2022  |  Steven Place

When the market’s volatile, leveraged ETFs can let you control a significant part of the market without a ton of capital.

Here’s the problem many traders face when they do this:

They treat them as investment vehicles instead of a fast way to trade.

Leveraged ETFs will use the daily returns of the underlying market, meaning if we see a ton of choppiness, the ETF will decay… 

Almost like an option. 

Let’s look at an example to illustrate how this works. We can compare the long-term price action in XLF (a bank ETF) to FAS (the 3x leveraged ETF).

Here’s XLF:

XLF Chart

XLF Chart

Here’s FAS:

FAS Chart

FAS Chart

XLF is above the 2020 highs, while FAS has already dipped underneath them. 

Leverage runs both ways.

Now, I’m not anti-leverage. 

Quite the opposite, in fact. If you expect a strong, short-term trend, leverage can really “stack” the gains.

This works especially well in volatile markets. 

Inside Precision Volume Alerts, we’re using options on these leveraged ETFs to take it one step further. 

If the market “drifts” — meaning we see a multi-day streak in one direction — you could potentially score a massive win from your position’s convexity.

If you want to join Precision Volume Alerts and see what leveraged ETFs we’re trading: 

Check out this free presentation on our trading strategy.

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Steven Place
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