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Something Interesting Is Happening With Leveraged China ETFs

These should be go-go days for leveraged China exchange-traded funds, and they are. As the U.S. and China, the world's two largest economies, continue grappling over trade, some traders are enjoying the ride offered by the Direxion Daily FTSE China Bear 3X Shares (NYSE: YANG) or profiting from shorting the Direxion Daily FTSE China Bull 3X Shares (NYSE: YINN).

What Happened

The bullish YINN attempts to deliver triple the daily returns of the FTSE China 50 Index (TXIN0UNU), a widely followed gauge of Chinese large-cap stocks listed in Hong Kong; while the bearish YANG seeks results that correspond with triple the daily inverse performance of that index.

In the current environment, it is not surprising that YINN is getting drubbed while YANG is surging. On Monday, YINN plunged 10 percent on above-average volume, extending its one-week loss to just over 21 percent. Conversely, the bearish YANG surged 10 percent on volume that was more than triple the daily average. YANG is up almost 24 percent over the past week.

Why It's Important

So with YINN tumbling and YANG soaring, it would be reasonable to expect that traders are chasing the latter while avoiding the former. Actually, data suggest the opposite is true. Over the trailing one-, five- and 10-day periods entering Monday, the bullish YINN was among the top 10 asset gatherers among Direxion's leveraged ETFs.

Last Friday, traders added $24 million to YINN, a total surpassed by just two other leveraged Direxion ETFs. That brought YINN's five- and 10-day inflows totals to $37.22 million and $82.87 million, respectively. Over those 10 days, YINN's inflows equaled 21.80 percent of the fund's total assets, according to issuer data.

On the other hand, traders are taking profits in the bearish YANG. Over the aforementioned one-, five- and 10-day periods, YANG was a top five offender in terms of assets lost among Direxion's leveraged ETFs. For the 10 days ending May 10, YANG saw departures of $20.72 million, the equivalent of 24.40 percent of the fund's total assets, according to Direxion data.

What's Next

As for what is next, the longer Chinese stocks slide, it is possible traders will continue tempting fate with the bullish YINN. A rebound in Chinese stocks is not likely to be advertised, but when it happens, YINN could easily deliver double-digit intraday gains, but waiting for that day could prove risky for some traders.

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