Tuesday, January 5, 2010

Triple ETF Options Landscape One Month After New Margin Rules

On December 1st, the Financial Industry Regulatory Authority (FINRA) implemented more stringent margin requirements for leveraged ETFs in Increased Margin Requirements for Leveraged Exchange-Traded Funds and Associated Uncovered Options.

On that day, I updated my table of all the optionable triple ETFs and now that one month has passed, I thought it might be interesting to see how the activity in these ETFs and their options may have been affected by the new margin requirements.

Using data from iVolatility.com, I have captured the highlights below. While not shown here, I should note that in the almost three months from my previous update on September 9th to December 1st, four different triple ETF pairs (UPRO/SPXU, TNA/TZA, DRN/DRV and EDC/EDZ) showed substantial growth in volumes and every single pair showed some signs of increased interest -- so triple ETFs had significant momentum when the new margin rules were implemented. This time around, however, the only notable growth has been in the long bond pair, TMF and TMV, which admittedly comes off of a very small base. Also, there are signs that the large cap pair (BGU/BGZ) and the developed markets pair (DZK/DPK), are starting to lose traction.

Of course, we will never know whether interest in triple ETFs might have plateaued without the FINRA rules, but it is fair to say that FINRA has now stopped the growth momentum of triple ETFs in their tracks.

I will leave it for readers to pick through the data for some other interesting observations, but I would be remiss in not noting that the bear ETF implied volatility has dropped much faster that the bull ETF implied volatility almost across the board.

For the two previous posts in this series, readers are encouraged to check out:

[source: iVolatility.com]

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