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Fascination With Triple Levered ETFs Ends: Direxion Closing Nine 3x ETFs Due To Lack Of Interest

Tyler Durden's picture




 

It was fun (not really) while it lasted, but America's habitual gamblers have finally grown tired of the theta sucking monsters known as uber-levered ETFs. End result: Direxion is announcing it is closing nine 3X levered ETFs.

From Direxion:

The Board of Trustees of the Direxion Shares ETF Trust has decided to liquidate and shutter nine exchange-traded funds ("Funds") based on the recommendation of Rafferty Asset Management, LLC, the Trust's advisor.

 

Due to the Funds' inability to attract sufficient investment assets, Rafferty believes they cannot continue to conduct their business and operations in an economically efficient manner. As a result, the Board concluded that liquidating and shuttering the Funds would be in the best interests of the Funds and their shareholders.

 

The Trust will close the following Funds: Direxion Daily Agribusiness Bull 3X Shares (COWL), Direxion Daily Agribusiness Bear 3X Shares (COWS), Direxion Daily Basic Materials Bear 3X Shares (MATS), Direxion Daily BRIC Bull 3X Shares (BRIL), Direxion Daily BRIC Bear 3X Shares (BRIS), Direxion Daily Healthcare Bear 3X Shares (SICK), Direxion Daily India Bear 3X Shares (INDZ), Direxion Daily Latin America Bear 3X Shares (LHB) and Direxion Daily Retail Bear 3X Shares (RETS).

And to think they all had such memorable names...

What happens next:

Shares of the Funds will stop trading on the NYSE Arca, Inc., and will no longer be open to purchase by investors, at the close of regular trading on September 5, 2012. Shareholders may sell their holdings in the Funds prior to the closing date, and those transactions are subject to customary brokerage charges. Between the closing date and the liquidation date, shareholders may only be able to sell their shares to certain broker-dealers and there is no assurance that there will be a market for the Funds during that time period.

 

On September 12, 2012, the Funds will liquidate their assets and distribute cash pro rata to shareholders who have not previously redeemed or exchanged their shares. These payments are taxable and will include any accrued capital gains and dividends. Each Fund's net asset value will reflect the costs of closing the Fund as calculated on the liquidation date. The Funds will close when the distributions are complete.

 

The process of closing down and liquidating the Funds' portfolios, scheduled to take place between September 5, 2012 and September 12, 2012, will result in the Funds not tracking their underlying indexes and experiencing an increase in cash holdings. These developments may not be consistent with each Fund's investment objective and strategy.

Following the disappearance of 3x ETFs as an asset class we will see the exit stage left of 2x levered ETFs, then unlevered ETFs, especially if key ETF market maker Knight folds, then finally single name stocks, as nobody is left to trade anything or hold the bag, and as no incremental capital remains to be "invested" into the stock market by the greater fool.

 

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Fri, 08/03/2012 - 16:48 | 2676814 JLee2027
JLee2027's picture

When is 1,000,000 Levereged SLV Closing?

Fri, 08/03/2012 - 17:19 | 2676884 flacon
flacon's picture

How about DUST and NUGT? LOL!

Fri, 08/03/2012 - 17:48 | 2676930 francis_sawyer
francis_sawyer's picture

It's easy to assume that there are more PHYSICAL ounces of paper stacked against PHYSICAL ounces of silver as we speak...

~~~

So... all you 'market' homos... Step up to the plate & make your bets... Go ahead... Be BRAVE... I'm on the edge of my seat to see how it's going to turn out...

Fri, 08/03/2012 - 18:14 | 2677003 Tippoo Sultan
Tippoo Sultan's picture

Hell, even Cramer railed against the triple-stupid/levered ETF complex.

"We therefore commit these bodies to the deep..."

Fri, 08/03/2012 - 18:41 | 2677082 Grinder74
Grinder74's picture

Wait, Osama bin Laden was tripled-levered?

Fri, 08/03/2012 - 18:48 | 2677107 Tippoo Sultan
Tippoo Sultan's picture

Touche.

Fri, 08/03/2012 - 19:43 | 2677210 Thomas
Thomas's picture

The only thing 3x levered were the losses. All those levered funds are dogs. I like the part about capital gains, like there will be a ton of those. Yet another group of investors gets a deracination.

Fri, 08/03/2012 - 20:19 | 2677253 veyron
veyron's picture

They are designed to melt down. Retail can't short, so only a handful of players can profit from the death.

Sat, 08/04/2012 - 06:25 | 2677667 MillionDollarBoner_
MillionDollarBoner_'s picture

Be interesting to see how those customary brokerage charges and costs to liquidate the funds stack up.

I imagine it will be like a bankruptcy, where the liqudators burn through most of the remaining funds and the muppets get reamed ;o)

Sat, 08/04/2012 - 01:25 | 2677564 Freddie
Freddie's picture

Cramer needs to join them in a dirt nap.

Sat, 08/04/2012 - 06:21 | 2677664 MillionDollarBoner_
MillionDollarBoner_'s picture

"Dust thou art, and unto dust thou shalt return"

(Genesis 3:19),

Sat, 08/04/2012 - 08:27 | 2677723 spankthebernank
spankthebernank's picture

Can't we see they have captured a large portion of the the retired and suckers money, liquidity is drying up. They bankrupt Knight, shutter these funds and will shutter more. It's consolidation time for the oligarchs, they desire control and will defile this market until it breaks.

Fri, 08/03/2012 - 16:51 | 2676820 ThunderingTurd
ThunderingTurd's picture

It seems as if the 'L' side of my P&L has been fascinated with them since April...

Fri, 08/03/2012 - 16:55 | 2676825 Josh Randall
Josh Randall's picture

Concert cancelled due to lack of advertising funds

Fri, 08/03/2012 - 16:58 | 2676827 Dr. Engali
Dr. Engali's picture

You mean people aren't interested in a product that gets you creamed if the index goes against you,but it doesn't participate when you are on the right side of the call? Who would have thunk it?

Fri, 08/03/2012 - 17:17 | 2676880 flacon
flacon's picture

Shorters are disappointed. Remember the short AGQ, long ZSL play? Guaranteed to make money - not that I've done it, but in theory it should be a winner. 

Fri, 08/03/2012 - 16:58 | 2676834 aerojet
aerojet's picture

ETFs are such a joke.  The inverse ones were just bizarro land.  Levered ETFs had the same and worse problems as the inverse ones.  Just a play to extract money from fools, pretty much.

Fri, 08/03/2012 - 17:01 | 2676840 John Self
John Self's picture

Agreed, but interesting how frequently (as we've seen in other contexts in recent years), the fools turn out to be the "sophisticated" institutional investors, not retail.

Sat, 08/04/2012 - 07:33 | 2677695 Marco
Marco's picture

I think bribery of institutional investors is endemic, plenty of examples to be found and knowing how efficient financial policing is they can only be a very small tip of the iceberg.

Hell, maybey they can even convince themselves it isn't bribery at all ... rich folk aren't like normal people after all.

"The three asset managers charged with bribing Gloor pleaded not guilty, saying they had paid him money solely as "gestures of friendship" or out of "gratefulness", but never in return for favours, the NZZ said."

Fri, 08/03/2012 - 17:18 | 2676883 flacon
flacon's picture

Wynter Benton went long AGQ and made a killing, I hear. 

Fri, 08/03/2012 - 19:17 | 2677038 ThisIsBob
ThisIsBob's picture

Aero, you are obviously not an active trader. 

Fri, 08/03/2012 - 18:27 | 2677055 Amish Hacker
Amish Hacker's picture

Time decay, bitchez. And the mathematical reality that if something goes down 33%, it has to go up 50% to get back to break even. Using a "Buy and Hold" strategy with leveraged ETFs is only for the brain-dead.

Fri, 08/03/2012 - 21:26 | 2677352 Al Huxley
Al Huxley's picture

Yes, and you don't even have to do the math to figure it out - anybody looking at the charts could see it.

Sat, 08/04/2012 - 09:02 | 2677775 disabledvet
disabledvet's picture

Yep.

Tue, 08/07/2012 - 03:34 | 2683966 Precious
Precious's picture

Why don't you go buy some nylons, faggot.

Fri, 08/03/2012 - 16:59 | 2676836 John Self
John Self's picture

This violates the golden rule of the ETF industry:  if you reserve a cutesy enough ticker, you're guaranteed to succeed!

Fri, 08/03/2012 - 20:23 | 2677256 veyron
veyron's picture

Fuck Gartman and his shitty ONN ETF. NASDAQ misinterpreted ONNN (ON Semiconductor) as ONN and I ended up losing 50 bucks on that gaffe.

Fri, 08/03/2012 - 17:01 | 2676842 dwayne elizando
dwayne elizando's picture

ULE needs to join this list.

Fri, 08/03/2012 - 17:01 | 2676843 The Wizard of Oz
The Wizard of Oz's picture

3x BULLISH!!!!!!!!!!

Fri, 08/03/2012 - 17:06 | 2676853 Sequitur
Sequitur's picture

Wow, maybe I can get in on this. I need some Alpha. Using my client's money, of course.

- John Corzine.

Fri, 08/03/2012 - 17:26 | 2676862 slewie the pi-rat
slewie the pi-rat's picture

wowser!  theta sucking monsters!

a triple lindy of triple lindy fails!

their erexion has lost its direxion, BiCheZ!

[we may soon hear of criminal investigation;  the treble-damage civil fraud suits will contain specific language allegating frequent and repeated triple COW-tipping at the close...]

 

Sat, 08/04/2012 - 09:04 | 2677778 disabledvet
disabledvet's picture

+ a million...

Fri, 08/03/2012 - 17:14 | 2676867 Arnold Ziffel
Arnold Ziffel's picture

<< there is no assurance that there will be a market for the Funds during that time period.>>

 

Sounds 'Bullish' to me.

Fri, 08/03/2012 - 17:14 | 2676870 Meesohaawnee
Meesohaawnee's picture

been my experience that yes its true .. You really dont need certain sectors. Lets face the emerging markets trade the same as the US equity markets so they seem redundant to me. I could be wrong but you can trash them for all the degradation you want. I just  look at them like options without the expirations? I know very little here so please if someone can lash me and correct me please do .

Fri, 08/03/2012 - 17:14 | 2676871 adr
adr's picture

But I thought owning something that is supposed to own part of something else that derives its price based on the movement of something that it might not own but may be tied to the movement of something else owned by someone else, was a good thing.

Fri, 08/03/2012 - 17:15 | 2676874 Piranhanoia
Piranhanoia's picture

I refuse to gamble on bullcows and bearcows and briccows because that seems stupid after drinking.

Fri, 08/03/2012 - 17:18 | 2676881 Butt Fux
Butt Fux's picture

Meh. I don't think they're going to be closing the TZAs or SKFs anytime soon.

Fri, 08/03/2012 - 17:23 | 2676886 agent default
agent default's picture

There is nothing wrong with x3 ETFs or x50 ETFs for that matter unless you understand one basic thing:  These things are intended for ultra short term, preferably intraday trading and are aimed at experienced/professional traders, of perfect market timers.

At some point down the line, some "investment advisers" started putting them in client portfolios and recommending to hold them long term.  I am at a loss for words at the standard required to become a licensed investment adviser here.  They are completely oblivious to the function of the leveraging mechanism involved in these gizmos and how it relates to NAV.  Same for Inverse ETFs.  An inverse position is A LEVERED POSITION. Stop looking stupid when you get pounded by these things, they don't work the way you think.  At least not in buy and hold mode as many crackpots in the industry will try to tell you. 

BTW food for thought:  Under high contango conditions, is your "1:1" six month commodity futures ETF levered? 

Ask your "investment adviser" .

PS:If you don't understand what this rant is about stay away from these things. If you do then you know not to touch these things.

Fri, 08/03/2012 - 17:35 | 2676910 dwayne elizando
dwayne elizando's picture

What about binary options? Can I touch them?

Fri, 08/03/2012 - 17:43 | 2676919 agent default
agent default's picture

All or nothing intraday bet.  Do you feel lucky?

Fri, 08/03/2012 - 17:52 | 2676941 Lost Wages
Lost Wages's picture

Even Charles Nenner has been recommending TBT long-term.

Fri, 08/03/2012 - 21:46 | 2677379 Al Huxley
Al Huxley's picture

I disagree. What you said is probably what they claimed in the prospectus, but the reality is they were targeted at gullible retail, who often didn't understand the math the creates the longer-term decay.  And I'm sure many (most?) investment advisors didn't help the situation by providing clarification to their customers.

Fri, 08/03/2012 - 23:53 | 2677519 singsing
singsing's picture

If you get a prospectus.  They don't even bother to send you a prospectus in Canada.

Sat, 08/04/2012 - 01:32 | 2677566 Freddie
Freddie's picture

Agreed.  They are very volatile.  You can swing trade them if you are good. You have to pay very close attention like a day trade or options and it "ain't" easy.

The TMF or 3x 30 uear T Bond is looking shaky.  If we have a correction in bonds - a lot of people are gonna get hurt.

It is weird how they decided to shut em down the day after Knight immolates over a 30 minute lunch time.

Sat, 08/04/2012 - 07:36 | 2677697 Marco
Marco's picture

So who's supposed to hold the bag at the end of the day?

Fri, 08/03/2012 - 17:27 | 2676900 mccoyspace
mccoyspace's picture

Given that everything is so tightly correlated across every asset class, all these funds should be replaced with a coin flip based on what comes out of the Fed/ECB's mouth.

Sat, 08/04/2012 - 09:07 | 2677780 disabledvet
disabledvet's picture

50 50! Hahahaha. That's a good one!

Fri, 08/03/2012 - 17:27 | 2676903 Meesohaawnee
Meesohaawnee's picture

please. call me an idiot. and i dont ever want to chart my winnings to anyone here. its just for the sake of argument. Last april i pitched most every long i had and just built a TZA position up till june. I dont know. A + 40% in three months didnt seem so bad but i know., even a blind squirrel finds a nut. I swing trade, so i got lucky

Fri, 08/03/2012 - 17:37 | 2676907 q99x2
q99x2's picture

Guess they are still making too much money screwing their customers on the infamous TfuckinVix ETN. m'fers. It is a bargain today at 3 bucks a pop. Get it while you can.

Anyhow who wants to be in stocks when you can be out having fun in a civil fucking war.

That's it I'm going back to listen to PrisonPlanet.com

Fri, 08/03/2012 - 17:35 | 2676911 Zero Govt
Zero Govt's picture

what a shame, another door for me to lose money is closed!

Fri, 08/03/2012 - 17:47 | 2676928 walküre
walküre's picture

Due to the Funds' inability to attract sufficient investment assets,

Nice, real nice way of saying "We ran ouf of suckers". LOL

How much market volume is due to ETFs buying and selling? Especially on ramp days like today.

So the muppets stopped playing but the maintenance costs of the ETF vehicles are still a factor.

Fuck you Proshares and Direxion!

Abomination of some unholy Wall Street banker and broker marriage.

Fri, 08/03/2012 - 17:48 | 2676929 buzzsaw99
buzzsaw99's picture

As long as the FAZmobile is still burning, er, rubber, all will be well.

http://www.forbes.com/sites/etfchannel/2012/08/03/faz-large-inflows-dete...

Fri, 08/03/2012 - 17:59 | 2676966 cougar_w
cougar_w's picture

COWL became a hermit, COWS went tits-up, MATS was down for the count, BRIS took too much off the tip, SICK was totally not well, and INDZ endedz.

I had fun. Did you?

Fri, 08/03/2012 - 18:45 | 2677096 Grinder74
Grinder74's picture

Now, if we could just get them to shut down and liquidate OBMA, HLDR and CRZN we'd be all good.

Fri, 08/03/2012 - 18:14 | 2677006 deflator
deflator's picture

 Shouldn't there be some arbitrageable short covering rallies in these things, especially the inverse ones?

Fri, 08/03/2012 - 18:25 | 2677036 Frank N. Beans
Frank N. Beans's picture

that's it, i'm going "all in" in DOGS - 5x inverse shit

Sat, 08/04/2012 - 07:52 | 2677705 Tom Green Swedish
Tom Green Swedish's picture

No 10x inverese.  More volatility is what we need.

Sat, 08/04/2012 - 09:09 | 2677782 disabledvet
disabledvet's picture

Think of the fortune Government could be making if they had a "trading tax"!

Fri, 08/03/2012 - 18:25 | 2677037 DWPro079
DWPro079's picture

The play with leveraged ETF's is to short and hold...let the magic of leverage chewing away share value over the long run work to your favor. My favorite play is to hedge the SLV by shorting the USLV. Works like a charm!!

 

 

 

Fri, 08/03/2012 - 18:25 | 2677039 monopoly
monopoly's picture

Wow, I feel pretty good here. I have been in the markets for a long time and I never even heard of any of those ETFs. Maybe I am doing something right. LOL>

Fri, 08/03/2012 - 18:26 | 2677049 AU5K
AU5K's picture

SOOL: + infinity today.

Fri, 08/03/2012 - 18:42 | 2677084 RobotTrader
RobotTrader's picture

Hilarious.

Nearly 4 years after the outright collapse of the entire financial system, the street is still dreaming up new trippple whammy items for the speculators.  They get rid of 9 today, there will be at least 25 new ones before Christmas.

Fri, 08/03/2012 - 19:38 | 2677200 razorthin
razorthin's picture

More evidence that being a bear has been a bitch.

Fri, 08/03/2012 - 21:51 | 2677380 roadsnbridges
roadsnbridges's picture

Irks me when CapitalContext doesn't close out the thieving day.  Looked like mass exits before some BTFDer came in at close.  Did VIX drop due to more cash exiting?

Fri, 08/03/2012 - 23:44 | 2677510 dolph9
dolph9's picture

Jump you Fuckers.

 

Or, if you don't want to jump, word on the street is that there aren't enough Mexicans to mow the lawns and clean the latrines.  I'm sure if you are hard working you'll be wanted somewhere.

Sat, 08/04/2012 - 07:51 | 2677704 Tom Green Swedish
Tom Green Swedish's picture

Mexico is growing faster and their stock market is performing better than ours.  Please congratulate Mr. Cheap Oil Nafta Clingon for his success.

Sat, 08/04/2012 - 03:28 | 2677597 Jack Sheet
Jack Sheet's picture

But...these are what Graham Bummers recommends in his absolutely free reports!

Sat, 08/04/2012 - 07:19 | 2677691 Venerability
Venerability's picture

Thank Goddess!

Maybe the first step improving the odds in the casino.

Sat, 08/04/2012 - 07:54 | 2677708 Tom Green Swedish
Tom Green Swedish's picture

I read an article that one of these 3x inverse by the Bank of Liborgate fame Barclays actually made no sense fundamentally on what it was supposed to be simulating.

Sat, 08/04/2012 - 08:56 | 2677759 EclecticParrot
EclecticParrot's picture

For the very first time, I slightly disagree with a clause in a Tyler headline ("Fascination . . . ends").

The concept of porno XXX leverage hasn't died -- day traders (and algo robots) are simply focusing on the most liquid vehicles:  TNA/TZA and FAS/FAZ, etc., while enough overnight holders and novices have already been burned by the originals and see "3X" as almost a brand name to be avoided.

An apt analogy would be:  do we really need a new, innovative brand of toilet tissue, when we're successfully wiping our asses with the current top brands ? /semi-SARC 

Sat, 08/04/2012 - 09:12 | 2677786 disabledvet
disabledvet's picture

The losses on the short side are in fact INFINITE.

Sat, 08/04/2012 - 13:07 | 2678138 EclecticParrot
EclecticParrot's picture

Only for long-term interday, not short-term intraday, holders.  An omelette left on a stove for several fortnights could burn down a house, couldn't it?  (I once knew a man who had "infinite" losses on TZA -- he made the mistake of using shorter and shorter time periods for his candles, until he eventually divided by zero.)

My broker sends a message each and every time a 3X fund is held overnight -- I'm not sure what else they could do.  IMO, unless an individual account is flagged as a 'pattern day trader', I would be OK with banning the purchase of 3X funds -- should be a simple matter to enforce with a CUSIP table. 

I have no way of proving this, but I'd bet there's a 30/70 split between those getting killed with FAZ because they don't understand the math vs. those trying to play "hero ball" with 3-week holds so they can earn enough take a "French" vacation for the 3Q each year.

 

Sat, 08/04/2012 - 09:09 | 2677781 I am a Man I am...
I am a Man I am Forty's picture

Average volume on COWL=> 4,500 shares

Sat, 08/04/2012 - 09:15 | 2677787 disabledvet
disabledvet's picture

If a former Governor and Senator steals client money and doesn't get prosecuted "what happens next?" comes to mind. "A bailout too far"? Anywho...DO NOT SHORT THIS MARKET.

Sat, 08/04/2012 - 13:29 | 2678193 chinaboy
chinaboy's picture

Beginning of the end of the triple fraud.

Sat, 08/04/2012 - 18:00 | 2678577 vft2212
vft2212's picture

With a symbol like $SICK you get what you pay for. Meanwhile this nails the coffin shut on the contrary bull run from March 2009. Of course every other indicator of market tops and deflation have been sounded and maximum thrust is long behind so watch out below.

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