Since the ceasefire announcement, investors have been closely following diplomatic developments between Washington and Tehran. Markets rallied as investor sentiment improved after President Trump signaled a de-escalation in hostilities following a series of reciprocal strikes earlier in the week, calling off planned strikes and pointing to progress in negotiations with Iran.
As quoted on Reuters, on Thursday, Trump indicated that a potential peace deal, which could reopen the Strait of Hormuz to shipping, may be finalized as early as this weekend. Iran, however, said no conclusive decision has been made, though substantial parts of the agreement appear to be in place.
The S&P 500 rose 1.75% on Thursday, while the tech-heavy Nasdaq Composite, which had seen sustained weakness since the start of the month, rebounded with a 2.54% gain as hopes of progress in negotiations lifted risk appetite. Oil prices declined following the positive developments, with U.S. benchmark West Texas Intermediate (WTI) slipping below the $90 per barrel level to trade around $85. The move dragged its performance down to a 7.25% decline over the past five days and a 12.89% drop over the past month, per OilPrice.com.
For investors with a higher risk tolerance, leveraged ETFs may offer an opportunity to amplify bullish positions and capitalize on optimism surrounding recent developments. However, these instruments are best used for tactical exposure.
Understanding Leveraged ETFs
Leveraged ETFs can be powerful tools for investors seeking to magnify short-term market moves, as these products aim to deliver 2x or 3x the daily performance of an underlying index through the use of derivatives such as swaps, futures contracts and other financial instruments. These products can be powerful tools for enhancing portfolio returns, particularly in high-conviction themes and fast-moving sectors.
In strongly trending markets, their compounding effect can generate outsized gains over a relatively short period, making them attractive tactical vehicles for aggressive investors. However, leveraged ETFs carry significantly higher risks than traditional funds and are typically more expensive due to higher management fees and the use of derivatives.
That said, leveraged ETFs are best suited for short-term tactical positioning, as their amplified return potential also comes with heightened volatility. Given these risks, leveraged ETFs are generally more suitable for experienced, risk-tolerant investors who actively monitor markets and understand the complexities of leveraged exposure.
Amplifying Market Moves With Leveraged S&P 500 ETFs
Leveraged ETFs tracking the S&P 500 offer investors broader and more diversified leveraged exposure to the U.S. equity market, allowing them to take amplified positions on overall market strength.
The performance of the funds below reflects strong momentum in U.S. equities, supported by improving investor sentiment and a growing appetite for risk amid optimism over ceasefire developments.
ProShares Ultra S&P 500 SSO
ProShares Ultra S&P 500 seeks daily investment results that correspond to 200% of the daily performance of the S&P 500. The fund charges an annual fee of 0.87% and has a one-month average trading volume of about 3.3 million shares.
ProShares Ultra S&P 500 added 3.39% on Thursday and surged 10.19% over the past month. SSO has added 20.12% year to date and 56.80% over the past year.
Direxion Daily S&P 500 Bull 2X ETF SPUU
Direxion Daily S&P 500 Bull 2X ETF seeks daily investment results that correspond to 200% of the daily performance of the S&P 500. The fund charges an annual fee of 0.60% and has a one-month average trading volume of about 15,300 shares.
Direxion Daily S&P 500 Bull 2X ETF added 3.18% on Thursday and surged 10.26% over the past month. SPUU has added 20.34% year to date and 57.48% over the past year.
Direxion Daily S&P 500 Bull 3X ETF SPXL
Direxion Daily S&P 500 Bull 3X ETF seeks daily investment results of 300% of the price performance of the S&P 500 Index. The fund charges an annual fee of 0.84% and has a one-month average trading volume of about 2.25 million shares.
Direxion Daily S&P 500 Bull 3X ETF was up 5.03% on Thursday and has gained 15.42% over the past month. SPXL has added 29.34% so far this year and 88.76% over the past year.
ProShares UltraPro S&P500 UPRO
ProShares UltraPro S&P500 seeks daily investment results of 300% of the price performance of the S&P 500 Index. The fund charges an annual fee of 0.89% and has a one-month average trading volume of about 2.98 million shares.
ProShares UltraPro S&P500 was up 5.05% on Thursday and has gained 15.32% over the past month. UPRO has added 29.10% so far this year and 88.11% over the past year.
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Direxion Daily S&P 500 Bull 3X ETF (SPXL): ETF Research Reports
ProShares UltraPro S&P500 (UPRO): ETF Research Reports
ProShares Ultra S&P500 (SSO): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).