With trade tensions again running hot between the U.S. and China, stocks in both countries are being punished, but that scenario is putting the spotlight on a pair leveraged exchange-traded funds.

What Happened

Over the course of last week, the FTSE China 50 Index (TXIN0UNU), a widely followed gauge of large- and mega-cap Chinese stocks trading in Hong Kong, slid 5.72 percent, putting the index back into territory its hasn't seen since the end of January.

This decline comes following another escalation in the prolonged trade spat, as Beijing announced Monday its plan to raise tariffs on $60 billion in U.S. goods from 10 percent to 25 percent. This was in response to the Trump Administration's own declaration earlier in the month that it would increase tariffs on $200 billion in Chinese by that same margin.

Increased volatility in Chinese stocks and subsequent declines are proving to be a boon for the Direxion Daily FTSE China Bear 3X Shares (YANG), which attempts to deliver triple the daily inverse returns of the FTSE China 50 Index.

Why It's Important

Entering Monday, YANG opened the day more 9 percent above its Friday close. As of that open, the ETF is up 30 percent on a month-to-date basis, making it the best performer among Direxion's leveraged bearish ETFs this month.

YANG's recent price action underscores an important point: when treated as the short-term instruments they are intended to be, leveraged ETFs can be the ideal avenues for active traders to profit from geopolitical headline risk, such as trade tensions.

Predictably, YANG's bullish counterpart, the Direxion Daily FTSE China Bull 3X Shares (YINN), has been getting decimated. YINN, which looks to deliver triple the daily returns of the FTSE China 50 Index, lost 9.5 percent over the tumultuous trade weekend, bringing its month-to-date loss to over 25 percent and making the fund one of the worst-performing Direxion leveraged bullish funds to start May.

What's Next

As for what's next for YINN and YANG, data suggest some traders are positioning for a rebound in Chinese stocks. For the 10 days ended May 12, traders added $44.30 million to the bullish YINN, while the bearish YANG ranked among the top 10 Direxion bearish funds for outflows during that period.