It's An Ill Wind, But ETF Sails Catch 'Em All

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Includes: RUSL, RUSS
by: Peter F. Way, CFA

Summary

If you think we've got tough market troubles here in the US, just take a look at the wringer Russia is going through.

Direxion Daily ETFs capture the agony and the ecstasy with 3x leverage ETFs on both sides of the proposition.

Here is how the market-makers [MMs] have been tracking it in the past 6 months.

The Siberian toboggan-ride

On long positions in the Direxion Daily Russia Bull 3x Shares ETF (NYSEARCA:RUSL):

(used with permission)

In the past 6 months, there have been brief daily periods where MMs saw client speculative hopes for Russian economic recovery from its Ukrainian adventures, but plummeting world oil prices continued the slide in stock price appraisals. Finally, the quotes for this 3x leveraged long ETF fell below the $5 level, where we stop determining hedging-derived price forecasts. The last forecast is simply being walked forward through time, daily, while ETF market quotes trail despondently down.

But if there's sellers, there's gotta be buyers, and vice-versa. So, the Direxion Daily Russia Bear 3x Shares ETF (NYSEARCA:RUSS) is on hand to pick up the opposing postures. Besides, in Russia, who makes a national image out of a bull?

Now there's a price rocket! From the time the Saudis pulled the plug on OPEC, RUSS went into lift-off, from under $15 in late October to over $48 day before yesterday. That's a 335% rise in 31 days, over 10% a day, on average. Don't ask about annual rates.

But on December 15th, the MMs said 'nuff, time to take 'em down. So today, we closed at $31+. Thrills and spills. This is entertainment, not investing. Exciting for sure. Something to help define what the outer limits might be.

Conclusion

Remember, in every trade there's an "other side". ETFs make it possible, even easy, to be able to choose which side you want to be on. So do puts and calls. But be sure you keep straight what role you intend to play, and what it will cost to "ante up". Confusion over that has cost hundred-year old institutions (like Barings, Ltd.) their existence.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.