Three Times The Action: Direxion Shares

Every week we review what we think are good portfolio ideas.  As you know, lately it’s been hard to find something worth your attention.  This may be the most difficult financial situation you’ll see in your lifetime.  Being able to navigate these waters is crucial to your investment survival.

So this week, instead of a “pick”, we want to show you a tool that you might find useful.  It is a tool that, like a sledgehammer, is great for what it is designed – but downright destructive if not used correctly. 

Direxion Shares are “leveraged ETFs designed to seek daily investment results, before fees and expenses, of 300% of the performance of the benchmark index that they track.”  In addition, there are inverse Direxion Shares that seek to return negative 300% of the index.  Direxion offers ETFs that track a variety of sector, style, and international benchmarks.  Here’s how they work…

Suppose that on Monday you thought Financials were due for a rally.  You bought Direxion Financial Bull 3X Shares (FAS) at the closing price of $2.70.  Sure enough, the rally happened and you punched out at the close on Tuesday, at $3.73.  Your one day gain – a whopping +38.1%!  Not bad for twiddling your thumbs for 24 hours.  That would be a welcome gain for any investor, especially in this punishing market.

But, as you know, it doesn’t always work out so well.  Had you been on the other side of that trade, you could have just as easily been down -38%.  Direxion Funds are powerful tools, but they should only be employed in select situations.  Now could be one of those times.

Keep in mind, we are not officially recommending any Direxion Shares.  These are potent securities and should only be wielded in select circumstances.  As in every trade, you should monitor your positions carefully.

Another caveat – the 3X leverage factor applies for one day only.  Each day the baseline resets.  In other words, a 10% move in an index over several days will not translate to 30% in the related Direxion Share.  The leverage factor over longer periods can be significantly more or less than 3X due to compounding effects.  If you’re ready to amplify your chance for gains in the market, go with Direxion Shares.