Leveraged ETF Traders Were Jittery About Apple Earnings

Apple Inc. AAPL, the largest U.S. company by market value, reported earnings Tuesday after the close of U.S. markets.

Data from the world of leveraged technology exchange traded funds (ETFs) suggest some traders were establishing short-term bearish positions ahead of the iPhone maker's latest quarterly update. (Note: this article was written prior to the release of Apple's results).

What Happened

Among leveraged ETFs tracking the technology sector, the Direxion Daily Technology Bull 3X Shares TECL is the dominant name. TECL attempts to deliver triple the daily returns of the Technology Select Sector Index (IXTTR).

That index “includes domestic companies from the technology sector which includes the following industries: computers and peripherals; software; diversified telecommunications services; communications equipment; semiconductors and semi-conductor equipment; internet software and services; IT services; electronic equipment, instruments and components; wireless telecommunication services; and office electronics,” according to Direxion.

Why It's Important

As of July 30, the index TECL tracks had a weight of 14.25 percent to Apple, or nearly 200 basis points more than the benchmark's second-largest holding, Microsoft Corp. MSFT. In other words, Apple earnings can make for the ideal short-term situation in which aggressive traders can deploy leveraged ETFs like TECL.

However, data suggest that in advance of Apple earnings, traders were cozying up to TECL's bearish cousin, the Direxion Daily Technology Bear 3X Shares TECS. TECS tries to deliver triple the daily inverse returns of the Technology Select Sector Index.

For the five days ended July 30, volume in TECS was more than 52 percent above the trailing 20-day average, according to Direxion data. Over that period, TECL's volume was also elevated, but not on par with the bearish TECS.

What's Next

For the 30 days ending July 30, the bullish TECL averaged daily outflows of nearly $855,000, according to issuer data. While it is not close to being a dollar-for-dollar scenario, the bearish TECS averaged daily inflows of nearly $170,000 over the same period.

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