How to Trade the Pullback

The recent pullback in stocks has put inverse ETFs into the spotlight. Direxion offers many inverse ETF choices, some with leverage, some without. How do investors or traders typically use these inverse ETFs for either short-term speculation or hedging a long-only equity portfolio?

As the market feels like it's been ripping and roaring for months, we've started to finally see a bit of a pullback, and as a result, our inverse funds get a bit more attention. We offer them across a wide range, anything from -3x, -2x, all the way to -1x, which are really almost like hedging tools. If you think things are getting a little frothy and you want to put on a short-term trade with a geopolitical catalyst, the Federal Reserve, or even this government shutdown, and you think there's something in the near term that will cause the market to pull back, inverse funds can be used to profit off the market selling off.

If you look at something like Palantir, for example, that was a high-flying name. These past five years, it's up north of 2,000%, which is frankly unbelievable. It's pulled back a bit off earnings; no name could fly up forever. Now, if you're a holder of Palantir and you don't want to realize what could be a meaningful taxable gain by selling your portion, you can buy PLTD, our -1x Palantir fund. This is a quick, efficient way to hedge your position without realizing a taxable gain in a long-standing holding.