There has been a lot written about the 2X and 3X ETFs that are in the direction of the different indices and trade opposite to them. Direxion launched eight of them 5 November 2008. They are:
| Ticker | Index | Leverage |
| BGU | Russell 1000 | 3X |
| TNA | Russell 2000 | 3X |
| ERX | Russell 1000 Energy | 3X |
| FAS | Russell 1000 Financial Services | 3X |
| BGZ | Russell 1000 | -3X |
| TZA | Russell 2000 | -3X |
| ERY | Russell 1000 Energy | -3X |
| FAZ | Russell 1000 Financial Services | -3X |
See the series of blog posts about these multiplier ETFs in the Daily Options Report. The posts there talk a lot about hedge funds getting a heads up that these ETFs have to rebalance because of the move in the index and trading ahead of the ETF.
Another way to play this is to trade the mean reversion the next day. That is, if the market moves “too far” because of hedge funds front running the ETFs and the ETFs magnifying the move in the direction of the trend by their rebalancing, then there should be a move back the next day.
Fading the SPY
If SPY is up over three quarters of one percent sell it market on close and then buy it back the next trading day at the open. If SPY falls 0.75% from the previous day’s close, buy it market on close. Then sell it back at the open of the next trading day. This is the cumulative return doing that since the Direxion ETFs were launched.
This is like the above, except we close our position at the close of the next trading day. This has a higher return. What is interesting here is that the return has such a strong oscillatory structure. Why is that?
Fading SPY Close to Open
Here we are closing out our position at the open of the next trading day. We are looking at a longer time span, from 1st February 2008 to 18 May 2009.
Fading SPY 2/1/2008 to 10/31/2008
Here we see the results of fading SPY before the launch of the Direxion ETFs.
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