Its my first time trading a leveraged ETF and I am looking to use it as a short term hedge vehicle for my portfolio (24 to 48 hr hold). Should I buy shares or buy weekly options? pros/cons?
Like SPY options intraday volatility collapse kills naked calls.(spread ok) Even weekly not easily to short against monthly calls. 0.10c weekly options can become a $ if the delta and theta goes along with it. Because of daily re balancing ,ooozes a lot but 3 times leverage with XLF intra day is sweet if you catch it. try buying FAS small quantity when it is over sold and sell weekly when it is overbought. You can keep doing it again and again. FAS may be same price after a week .but sold option premium is yours. worst come worst,your stock is called out (you made a 0/80c /$1 on 14$ stock. Be prepared for a loss too as it will underperfom XLFa nd if it does not move. same story as TNA,ERX,DRN,FAZ held longer term.
Although you can use the leveraged ETF over a 24 to 48 hour period as you suggest, you may wish to read the Direxion prospectus, where you will find the following statement, among others: "The fund seeks daily leveraged investment results and does not seek to achieve its stated investment objective over a period of time greater than one day." Remain aware of gap risk if you're holding any leveraged ETF overnight, because you may get stuck in a drawdown.