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Trading Volume Explodes in Leveraged and Inverse Small-Cap ETFs


Inverse (Short) and Leveraged “Bear” ETF Products linked to the Russell 2000 traded gigantic, if not historic volume yesterday, really accelerating following the FOMC minutes release.

Take TZA (Direxion Daily Small Cap Bear 3X, Expense Ratio 0.95%) which saw more than 25 million shares change hands (ADV 9.5 million shares), TWM (ProShares UltraShort Russell 2000, Expense Ratio 0.95%, 5 million shares) versus ADV of 2 million shares), RWM (ProShares Short Russell 2000, Expense Ratio 0.95%, 2 million shares versus ADV 1 million shares) and SRTY (ProShares UltraPro Short Russell 2000, Expense Ratio 0.95%, 1.5 million versus ADV of 681,000 shares) for example, and one can look at an intraday chart of any of the above and quickly get the point.

Activity was not relegated to small-caps yesterday, as we did see a huge pick up in bear (and in some cases bull levered) leveraged products that are linked to large cap indices including (SH, QID, SDS, SPXL, and SPXS just to name a few.

Resulting fund flows from the influx of activity is not immediately apparent, which is not unusual considering the short term trading nature of such leveraged funds.

Such volume, and in such a compressed time period, is unquestionably sophisticated institutional trading, and certainly not retail investors.

With volatility rearing its head late in May here (VIX traded as low as $12.26 just five trading sessions ago and is at $14.54 currently, and went from trading under its 50 day MA to challenging its 200 day MA above inside of three trading sessions), it seems safe to say that aggressive portfolio hedging if not outright bearish speculation is here.

Whether it is here to stay, is too early to call, we will wait until May actually wraps itself up before overanalyzing the “Sell In May And Go Away” historical trend.

Direxion Daily Small Cap Bear 3X

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

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