There has been a lot of buzz about the ETF industry and the flexibility it gives the average investor of trading like the pros. You can buy or sell short industries and sectors and even multiply the effect of your returns 2x or 3x the daily amount. One ETF that I would like to discuss is Direxion Financial Bear 3x Shares (FAZ)
FAZ seeks to increase the magnitude of a decline in financial stocks by the tune of 3 to 1. When you pick up these shares be ready for the crazy ride you will be on. On any given day this ETF can fluctuate from a difference of over 10 points from the high and low prices of the day! With the banks desparate for the release of the second half of the 700 Billion dollar TARP fund this could continue to fuel FAZ's rise. I see one of two scenarios coming down the pipeline:
1. More investments from the government into financials mean more stock dilution; or
2. A program to get rid of the bad bank assets means huge write-downs for the banks
Use FAZ for no longer than a day as you can end up on a downward slide very quickly. I am already in the red on the timing of this play and will cut my losses short. However, I will intently watch the financial sector and during periods of weaknesses this will definitely be a way to use a little bit of money to maximize your returns.
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