This ETF Is Saying Something About Fed Bets

With the Federal Reserve's March meeting just around the corner, some traders are looking for plays that are positively levered to rising Treasury yields. At the sector level, that often includes financial services stocks.

Traders willing to get a little more tactical know that regional bank stocks and exchange-traded funds really enjoy the notion of higher interest rates. Risk-tolerant traders can consider the Direxion Daily Regional Banks Bull 3X Shares DPST or its bearish counterpart, the Direxion Daily Regional Banks Bear 3X Shares WDRW as short-term trades around the upcoming Fed meeting.

The Index

DPST attempts to deliver triple the daily returns of the S&P Regional Banks Select Industry Index, one of the most widely followed regional bank benchmarks. WDRW looks to deliver triple the daily inverse returns of that index.

Related Link: Staples ETFs Confront A Potentially Hawkish Fed

“To be eligible for inclusion in the Index, stocks must satisfy one of the two following combined size and liquidity criteria: (1) float-adjusted market capitalization above $500 million and float-adjusted liquidity ratio above 90 percent or (2) float-adjusted market capitalization above $400 million and float-adjusted liquidity ratio above 150 percent,” according to Direxion.

Day Trade

Since DPST and WDRW are leveraged ETFs, they are best used as trade over the course of a day. Triple-leveraged ETFs, bull or bear, should not be expected to continue delivering on their stated objectives over longer holding periods.

Bullish regional bank ETFs are seen as prime beneficiaries of higher interest rates. Simply put, net interest margins at regional banks have been suppressed by the Fed's zero interest rate policy and reversing that policy is seen as an important catalyst in boosting profits for the banks in ETFs.

Data suggest there is enthusiasm for DPST. For example, the ETF was one of 243 to hit record highs Wednesday, surging 10.6 percent on more than double the average daily volume. Volume has been on the rise in WDRW as well. The bearish leveraged bank ETF saw its volume for the five days ended Feb. 28 jump nearly 32 percent above the trailing 20-day average, according to Direxion data.