Wednesday, February 4, 2009

Why Is There So Little Volume in the Most Recent Direxion ETFs?

It seems as if every day trader I know has fallen under the spell of the leveraged firepower of the Direxion triple ETFs. Oddly, only the first batch of ETFs that were rolled out in November have caught fire. These include the familiar tickers like FAS, FAZ, TNA, TZA, BGU, BGZ, ERX and ERY.

The most recent group of ETFs, which I discussed in Direxion Triple ETFs Add New Horses to Stable, has attracted considerably less interest. Even though they were launched at the end of December, only two of the six ETFs, EDC and TYH, have surpassed the 100,000 single day volume mark and TYH just grazed that bar, with a high volume mark of 101,900. In the chart below, a snapshot taken just past the halfway point of today’s session, the six new ETFs can be seen floundering at the bottom.

Juice is not the problem, as emerging markets (EDC and EDZ) and technology (TYH and TYP) are consistently among the most volatile corners of the market.

The comments on yesterday’s semi-rhetorical question we excellent. Let’s see what sort of explanation the collective wisdom can come up with today.

[source: Yahoo]


Anonymous said...

Quick question a little off the subject: can the VXX be used as a proxy for the VIX futures contracts? If so, at what ratio? Great work on this blog by the way. Thnaks.

Bill Luby said...

Hi Mike,

VXX can and is being used as a VIX futures proxy. optionMONSTER had a good report on one such trade in yesterday's Volatility Sonar report.

As for the ratio, I would think that would vary over the course of the cycle, as VXX has a target constant weighted average maturity of one month, while the VIX futures maturities are a moving target.



Anonymous said...

Thanks, I saw that report. However, I am trying to find the actual calculation so I can use an accurate hedge. I'll probably try Barclays themselves. I tried to use the spy as a hedge a while back and it worked for a while. However, the relationship between the spy and the front month futures broke down and I got my #$% handed to me. This new product seems very promising. Thanks again and keep up the great work.

Anonymous said...

i'll answer you question with a question of my own: why cant you add those ticker symbols to a portfolio in google finance?

Eric said...

In response to the post, I am increasingly hesitant to lever up by holding the 3x ETFs. I would rather speculate on out of the money calls at this time. Buying protection is just too expensive.
On another note, Friday or Monday I think we are going to start trending up. I am not convinced about financials yet, but i think the Midcaps and Oil related companies are good bets.
I also think the VIX may have a short spike, but i think 46 is the new ceiling as we move through the spring.

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