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After a week of intense market turmoil, Wall Street staged a historic comeback, as it posted one of the strongest single-day rallies in years. The rebound followed President Trump's decision to pause the largest tariff hikes on key trading partners for 90 days. The tariff pause was perceived as a positive step toward more stable international trade relations, encouraging market participants to re-enter equities with renewed confidence.

The S&P 500 soared 9.5%, marking its best day since 2008, while the tech-heavy Nasdaq surged 12.1%, its second-largest one-day gain on record. The Dow Jones Industrial Average jumped 7.9%, witnessing its biggest rally since 2008. While the gains were broad-based across sectors, technology stocks led the rally. 

Magnificent Seven stocks, which bore the brunt of the sell-offs, were among the biggest gainers. Tesla (TSLA) skyrocketed 22.6%, while NVIDIA (NVDA) and Apple (AAPL) surged 18.6% and 15.3%, respectively. Amazon (AMZN) rose 12%, while Meta Platforms (META) jumped 15%. Other technology stocks like Arm Holdings (ARM) advanced 24%, while Broadcom (AVGO) gained 19%.

Given this, several derivative-based ETFs were at the forefront of the historic rally. Such funds included Defiance Daily Target 2x Long MSTR ETF (MSTX - Free Report), STKd 100% NVDA & 100% AMD ETF (LAYS - Free Report), STKd 100% MSTR & 100% COIN ETF (APED - Free Report), Battleshares TSLA vs F ETF (ELON - Free Report), and STKd 100% SMCI & 100% NVDA ETF (SPCY - Free Report).

Derivative-based stock ETFs are specialized investment funds that utilize derivative instruments — such as options, futures, and swaps — to gain exposure to underlying assets or a specific company. Unlike traditional ETFs that primarily hold a basket of physical stocks, these ETFs employ derivatives to amplify returns, hedge risks, or provide inverse performance relative to an underlying stock.

ETFs in Focus

Here is a brief look at the previously-mentioned ETFs.

Defiance Daily Target 2x Long MSTR ETF (MSTX - Free Report) – Up 48.8%

Defiance Daily Target 2x Long MSTR ETF seeks daily leveraged investment results of two times the daily percentage change in the share price of MicroStrategy (MSTR). It charges 1.29% in annual fees, and it has AUM of $850 million.

STKd 100% NVDA & 100% AMD ETF (LAYS - Free Report) – Up 42%

STKd 100% NVDA & 100% AMD ETF invests in two of the most innovative chipmakers, fueling artificial intelligence, cloud computing, and next-gen gaming. It is an actively managed ETF that employs derivatives, namely swap agreements and/or listed options contracts, to gain long exposure to two NVIDIA and Advanced Micro Devices (AMD).

The ETF has gathered $0.7 million in its asset base since its inception around a month ago. It charges 1.29% in annual fees. 

STKd 100% MSTR & 100% COIN ETF (APED - Free Report) – Up 40.5%

STKd 100% MSTR & 100% COIN ETF seeks to employ derivatives, namely swap agreements and/or listed options contracts, to gain long exposure to two underlying securities, MicroStrategy and Coinbase Global (COIN). It brings together the leading institutional Bitcoin holder and the top U.S.-based crypto exchange, offering exposure to both ownership and trading of digital assets.

The ETF has accumulated $0.5 million in its asset base since its inception around a month ago. It similarly charges 1.29% in annual fees. 

Battleshares TSLA vs F ETF (ELON - Free Report) – Up 35.8%

Battleshares TSLA vs F ETF offers unique investment opportunities and is the first of its kind. The ETF aims to capture the battle between innovation and tradition in the automotive industry by taking targeted positions in two specific companies, one of which the advisor views as a new leader in this industry — Tesla — and one which the advisor views as a legacy leader in this industry — Ford Motor (F).

The ETF employs a unique investment strategy by establishing a leveraged long position in Tesla, targeting 180-220% of the fund’s net assets, and a leveraged short position in Ford, targeting 80-120% of the fund’s net assets. This means that the ETF will benefit if Tesla's share price outperforms Ford's share price after considering the effects of leverage.

The ETF newly debuted in the space in February, and it has gathered $0.8 million in its asset base. It charges 1.29% in expense ratio.

STKd 100% SMCI & 100% NVDA ETF (SPCY - Free Report) – Up 34.1%

STKd 100% SMCI & 100% NVDA ETF offers exposure to companies at the forefront of AI workloads, cloud computing, and data center expansion. It employs derivatives, namely swap agreements and/or listed options contracts, to gain long exposure to two underlying securities, Super Micro Computer (SMCI) and NVIDIA.

The ETF has accumulated $0.3 million in its asset base since its inception around a month ago. It charges 1.29% in annual fees.

Downside Risk to Derivatives-Based Investing

Investment in these ETFs comes with significant risks due to their lack of diversification and exposure to the volatility of a single or two stocks. They are typically more suited for experienced investors who understand and are willing to accept these risks. Here are risks associated with these ETFs:

• High Risk: If the specific company underperforms, investors could lose a substantial amount of money.
• Lack of Diversification: One of the key principles of risk management in investing is diversification. Derivatives-based ETFs go against this principle, as they are invested entirely in one or two companies.
• Market Volatility: A derivatives-based ETF is subject to the volatility of the individual stock, which can be influenced by company-specific news and events.
• Liquidity Risk: Some derivatives may be less liquid, making it challenging to enter or exit positions without significantly affecting the price. 
• Management Fees: While typically lower than mutual funds, ETFs still come with significant management fees, which can eat into investment returns over time.

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