Interest Rate Speculation Fuels Activity In These Leveraged ETFs

When it comes to regional bank exchange traded funds, the SPDR S&P Regional Banking ETF KRE is the group's big kahuna and as a result of its heft, dominates the conversation.

As investors have come to terms with the notion that the Federal Reserve is increasingly likely to raise interest rates following its December meeting, 10-year Treasury yields are reflecting that view with a one-month surge of nearly 13 percent. Predictably, KRE, an ETF that is positively correlated to rising rates, has benefited with a one-month gain of nearly 6 percent.

Adventurous traders can benefit from this theme or bet that the Fed will not raise rates in the near-term with a pair of still unheralded leveraged regional bank ETFs, the Direxion Daily Regional Banks Bull 3X Shares DPST and the Direxion Daily Regional Banks Bear 3X Shares WDRW, both of which debuted in August.

DPST, the bullish member of that pair, will look to deliver triple the daily returns of the Solactive U.S. Regional Banks Total Return Index, while WDRW will attempt to produce three times the daily inverse performance of that index.

For the early part of their still young lives, DPST and WDRW toiled in relative anonymity, but recent data suggest traders are starting to take note of the first and only leveraged regional bank ETFs on the market.

For the five-day period ending November 11, WDRW's average volume was a whopping 253 percent above the ETF's trailing 20-day average, according to Direxion data. That could be seen as a sign that some risk-tolerant traders are betting the Fed will not raise rates, a move that would almost assuredly punish regional bank stocks.

However, there is some encouraging volume data for the bulls as well. Over the same five-day stretch, DPST, the bullish leveraged regional bank ETF, saw its volume surge more than 246 percent above the trailing 20-day average. Only three of Direxion's leveraged ETFs, including WDRW, saw greater increases in turnover during that period, according to issuer data.

Over the past month, DPST is up 13.7 percent while on a month-to-date basis WDRW entered Thursday with a 17.1 percent loss, worse than all but two of Direxion's leveraged bear ETFs. Still, traders have displayed a preference for the bearish regional bank ETF. Data indicate that WDRW has average modest daily creation activity over the past month while the same cannot be said of DPST.