Leveraging The Regional Bank ETF Trade

Avid followers and traders of financial services stocks know the story all too well at this point. The Federal Reserve declined to raise interest rates following its September meeting. Financial services stocks and exchange traded funds languished in the wake of that decision.

The SPDR S&P Regional Banking ETF (NYSE: KRE) is a prime example of that phenomenon. As seasoned financial services investors and traders well know, regional bank stocks and ETFs, such as KRE, have eagerly anticipating higher interest rates. Obviously, the Fed did not deliver last month and over the past month, KRE, the largest regional bank ETF, has shed more than two percent. 

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 such as KRE. Active traders willing to ratchet up their risk profiles now have leveraged ideas with which to play the regional bank trade.

In August, Direxion, the second-largest issuer of inverse and leveraged ETFs, rolled out the Direxion Daily Regional Banks Bull 3X Shares (NYSE: DPST) and the Direxion Daily Regional Banks Bear 3X Shares (NYSE: WDRW). 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.