Leveraged ETFs, Volatility and Range-Bound Markets

I noticed that Direxion, the dean of triple ETFs, has added a handful of tools to their web site recently. These include:

• Daily/Cumulative Performance Illustrator
• Tracking Center
• Recent Volume Tool
• Volatility Tool
• Premium/Discount Tool

While all five of these tools (plus several more that are specific to Bloomberg users) are helpful for understanding how leveraged ETFs work and what to expect from them, the one that I am drawn to is the volatility tool, a snapshot of which is appended below.

If you are one of those investors who see the potential for range-bound trading in stocks and the possibility of entering The Elusive Trading Range, then straddles, strangles, butterflies and condors on leveraged ETFs are one way to capture greater premium than betting on a lack of movement in an unleveraged underlying.

Unfortunately the Direxion volatility tool is limited to 10, 30, 90 and 180-day volatility look back periods. Even more disappointing is that the source data are stale. Right now the volatility numbers are calculated on the basis of the June 30^th close. Using a good options broker or options data provider, one can build their own leveraged ETF watch list and get real-time implied volatility, etc., but kudos to Direxion for taking a small step to address some of the concerns that have been raised about leveraged ETFs in recent months.

For more on related subjects, readers are encouraged to check out:

• The Elusive Trading Range
• Sideways Markets, Covered Calls and the RUT
• Triple ETF Options Landscape One Month After New Margin Rules
• Using Options to Control Risk in Leveraged ETFs
• The Next Big Thing?

[source: Direxion]

Disclosure(s): none