Following on from the focus last week on SpaceX, guess what more of the same. The day a private rocket business finally goes public, the product development teams of the ETP world do not pause to admire the engineering. They reach for the leverage dial.
The newest crop of listings has a theme, and the theme is that owning the most hyped stock of the decade is apparently not enough on its own. Somebody, somewhere, decided you should be able to own twice as much of it before lunch.
Direxion Daily SpaceX Bull 2X (LOFF, NYSE), ProShares Ultra SpaceX (SPCF, NYSE) and Ninepoint SpaceX (SXHI, Toronto)
Three separate SpaceX products arrived at once. Direxion offers a 2X daily bull version on the New York Stock Exchange, ProShares offers its own 2X daily version one ticker over, and Ninepoint has a Canadian listing in Toronto for anyone north of the border who felt left out.
The Direxion ticker is LOFF, which I assume is meant to evoke “lift off” and which I find genuinely delightful. It offers two times the daily move of a company that has just arrived on the public market at a valuation rivalling the largest businesses on earth, while still posting losses in the billions. The underlying is a rocket company. The wrapper is a leverage multiplier. The risk profile is, let us say, thematically consistent.
What I admire most is the speed. The shares had barely finished their first day of trading before the leveraged versions were queued up behind them. The market did not want exposure to SpaceX. It wanted twice the exposure to SpaceX, and it wanted it immediately.
The Leverage Shares 2X Long semiconductor alphabet (ADIU, APHG, FNG, KEYG, MCHG, TELG and TSEG, all NYSE)
Then there is the Leverage Shares 2X Long range, seven products listed on the New York Stock Exchange, each one doubling the daily move of a single chip stock. ADIU, APHG, FNG, KEYG, MCHG, TELG, TSEG. It reads less like a product line and more like an eye test.
This is not a portfolio. It is a buffet. You no longer pick semiconductor exposure; you pick which individual semiconductor company you would like to be twice as exposed to, on a daily basis, with all the path dependency that daily resets quietly bake in. And Leverage Shares is not even alone here. Rival issuers have been launching their own two-times single-stock chip products, which means we now have a leverage arms race over who can offer the most amplified bet on the same handful of tickers.
Somewhere a compliance officer is reading these names aloud and slowly losing faith.
Onyx Spot Return Crude Oil ETP (ONOIL, LSE), where “spot” is doing heavy lifting
Onyx, an oil trading house, has decided to take a run at the established commodity ETP players with a product it calls a spot return crude oil vehicle, listed in London. The pitch is exposure to the oil price without the tedious business of storage, insurance, and physical delivery.
The word “spot” is working hard in that name. The product is in fact a fully collateralised, swap-based structure backed by a rolling portfolio of Dated Brent futures held a couple of weeks forward. It tracks the bit of the oil market that prices the overwhelming majority of physical crude, so the spot framing is fair enough. But it is worth appreciating the small linguistic miracle whereby a basket of futures contracts becomes a “spot” product the moment it is convenient to call it one. I would love to know how long this product has been in ideation as the timing is very pertinent, let’s see if the war is finalised on Trump’s birthday however.
What does it all mean?
The ETP industry, bless it, is fundamentally in the business of giving people exactly what they want. And what people want, it turns out, is more. More leverage, more single-stock precision, more rocket, more everything. The market is not confused about risk. It is entirely aware of it. It has simply decided that risk is a feature rather than a bug.
A loss-making rocket company now has three ETFs and a two-times multiplier on day one. Seven chip stocks each have their own doubling machine. A basket of oil futures has been rebranded as spot.
I keep waiting for the cycle to peak. It never does. There is always one more dial to turn, and the industry will turn it, because someone, somewhere, will buy whatever sits on the other side. Lift off, indeed.
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