An Important Leveraged ETF To Watch During Earnings Season

With earnings season and trade tensions potentially thawing, there could be reasons to embrace the technology sector from the long side and active traders can establish bullish stances with leveraged exchange traded funds, such as the ProShares UltraPro QQQ TQQQ.

TQQQ attempts to deliver triple the daily returns of the tech-heavy Nasdaq-100 Index, one of the most widely followed benchmarks of domestic stocks. Like any other leveraged ETF, TQQQ comes with its perks and its drawbacks.

“Due to the compounding of daily returns, ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period,” according to ProShares. “These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks.”

Why It's Important

There are 11 sectors represented in the S&P 500, but the Nasdaq-100 is a different animal with exposure to just eight sectors and just three are of consequence in the benchmark: technology, communication services and consumer discretionary. Those groups combine for over 83% of the benchmark's roster.

For those looking for event-driven trades, TQQQ makes a lot of sense around earnings announcements because the fund's underlying index allocates a combined 32% of its weight to Apple AAPL, Microsoft MSFT and AMZN.

Opportunity with TQQQ could be imminent with the quarterly earnings report from Netflix, Inc. NFLX due out Wednesday. TQQQ reaction to the Netflix earnings report may not be a harbinger of things to come because if the company reports another batch of disappointing streaming numbers, plenty of other Nasdaq-100 components, including Apple and Amazon offer streaming exposure.

What's Next

Home to $3.90 billion in assets under management at the end of the second quarter and average daily volume of 20.15 million shares, TQQQ is one of the largest and most heavily traded leveraged ETFs.

TQQQ's bearish counterpart is the ProShares UltraPro Short QQQ SQQQ. That ETF attempts to deliver triple the daily inverse returns of the Nasdaq-100 Index.

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Photo credit: bfishadow, Flickr

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