The issue is that Credit Suisse did not completely close the note. It simply delisted it, which is the same as allowing it to suffer a lingering death. It’s still possible to trade it since it was relocated to the OTC market and renamed DGAZF, but it’s a very lightly traded market prone to all kinds of trading anomalies.
DGAZF Begins Trading At Ridiculous Premiums To NAV
The actual action in this note started in early August. Around that time, according to Bloomberg’s Eric Balchunas, DGAZF began trading at three times its underlying NAV.
What exactly are DGAZ and UGAZ?
The United States Natural Gas Fund (UGAZ) and the United States Natural Gas Fund (DGAZ) are two 3x leveraged ETFs that track the same underlying asset. The UNG now keeps track of natural gas price changes. As a result, a UNG stock prediction will have a direct impact on DGAZ and UGAZ.
The fundamental goal of UGAZ (VelocityShares 3x Long Natural Gas) is to triple, or 200 percent, the daily performance of UNG. In other words, if the price of UNG rises by 1%, the price of UGAZ will rise by 3% on a daily basis. When you have a bullish feeling about UNG, you should consider trading UGAZ.
The fundamental objective of DGAZ (VelocityShares 3x Inverse Natural Gas) is to profit from the UNG fund’s losses. DGAZ will amplify losses by three times, or 200 percent, in the opposite direction. As a result, if the price of UNG drops by 1%, DGAZ should make you a 3% profit. As a result, if you are pessimistic on the UNG fund, you should consider this leveraged ETF.
Both UGAZ and DGAZ, as you may have noted, have a 3:1 leverage, which can greatly boost your potential profit.
Leveraged ETFs are significantly riskier than conventional ETFs, as we must underline. In fact, you can consider these instruments to be among the riskiest in the long run. The good news is that you can consider them in the short term with confidence because that is exactly what they were designed for: to boost the performance of an underlying asset for short periods of time, such as one day.
Regardless of whether I’m trading stocks or ETFs, I use trade options to properly place my wagers.
What is the reason behind DGAZ’s delisting?
I recommend reading the news release linked above if you haven’t already. Credit Suisse looks to have taken a step back from leveraged products involving volatile commodities. UGAZ and DGAZ are listed on the NYSE ARCA, which indicates that the delisting date is currently July 10th, or around two weeks away.
Investors should be aware of a few details about the delisting process. The first is that traders should begin to anticipate lower trading volume in the instrument as the delisting date approaches. This effectively means that if you are actively trading UGAZ or DGAZ, you may expect to see the bid-ask spread narrow and the depth of volume available to fill orders decrease. UGAZ/DGAZ are currently sinking ships, and active traders and investors are fleeing the market. As a result, I recommend that any remaining ETN positions be sold now to avoid the gradual loss of liquidity that we can expect in the future.
How does the Kold ETF function?
For one day, KOLD gives two times the inverse exposure to the performance of a natural gas futures contract. As a result, the fund is intended to be used as a tactical trading instrument that should be kept for no more than one day.
Is UGAZ available on Robinhood?
(Editor’s note: UCO was dropped from the list of most popular ETFs in an earlier version of this story.) We apologize for the oversight.)
Smaller investors, on the other hand, are not required to file 13Fs. However, there is a lot simpler way to keep track of what they own: Robinhood trade data.
Users may trade stocks, ETFs, options, and even cryptocurrencies on Robinhood’s commission-free trading platform. It presently has 13 million user accounts, the majority of which are owned by self-directed individual investors, with no account minimums or sign-up fees. (Compare that to TD Ameritrade’s 11 million accounts and E*Trade’s somewhat more than 5 million.)
Robinhood also makes limited transaction data public; user names are safeguarded, but each security’s price and popularity are logged in its API.
External data tracker Robintrack, which was founded by software developers Casey Primozic and Alex J, compiles this data into free, easily accessible charts that can be used to maintain tabs on what Robinhood users are trading. Robintrack allows users to see large trades in real time and spot emerging financial trends. (Robinhood is not associated with Robintrack.)
On June 4, we analyzed Robinhood’s top 20 most popular ETFs (shown in the table below) and discovered a few new investment trends:
Thematic ETFs are popular among Robinhood users, which should come as no surprise. With over 171,000 shareholders, the United States Oil Fund LP (USO) is the most popular ETF on the site.
Oil—and specifically USO—has been the standout thematic story of 2020 thus far, with energy consumption and oil prices plummeting as a result of the worldwide pandemic. Investors hoping to profit from a resurgence in oil prices have flocked to USO, with billions of dollars poured into the fund so far this year, despite its management drastically altering its portfolio structure. (For more information, see “More Big Changes For The Biggest Oil ETF.”)
However, oil isn’t the only COVID-related bounce on which Robinhood investors are betting. Due to the epidemic, airline stocks have also fallen, and more than 32,000 Robinhood users have taken advantage of the opportunity to purchase the US Global JETS ETF (JETS), putting themselves for a possible rebound in the sector. (See “The Year’s Fastest Growing ETFs.”)
Another popular pandemic play among Robinhood users is gold, specifically the SPDR Gold Trust (GLD), which has around 22,000 members. GLD’s huge liquidity and high gold-per-share price have led to the fund’s increased use by the market as a trading vehicle rather than a buy-and-hold investment instrument. (See “ETF of the Week: ‘Mini Gold’ Is Important.”)
Cannabis, via the ETFMG Alternative Harvest ETF (MJ), and artificial intelligence, via the Global X Robotics & Artificial Intelligence ETF, are popular themes with Robinhood customers outside of COVID-19 (BOTZ). Defense stocks are also gaining traction, as evidenced by the Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN).
You’ve got to hand it to Robinhood investors: when they pick a theme, they go all in. Despite the fact that most experts agree that retail investors should avoid leveraged and inverse ETFs, leveraged long thematic funds are among the most popular on the platform, with Robinhood investors accounting for a sizable portion of their entire asset base.
Energy ETFs like the ProShares Ultra Bloomberg Crude Oil ETF (UCO), the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (GUSH), and the VelocityShares 3X Long Natural Gas ETN (UGAZ), for example, have been popular among Robinhood customers wishing to hedge against rising energy prices.
GUSH, for example, is the third most popular ETF on Robinhood, with 110,000 investors. According to recent survey data, Robinhood’s average account size is between $1,000 and $5,000, therefore assuming an average account size of $2,500, Robinhood investors are responsible for roughly 72 percent of GUSH’s AUM. (This is merely a guesstimate, and not intended to represent the real proportion of GUSH’s investor base that originates from Robinhood.)
The Direxion Daily Junior Gold Miners Index Bull 2X Shares (JNUG) and the Direxion Daily Junior Gold Miners Index Bear 2X Shares (JNUB) are two equity gold trades that have gotten a lot of attention (JDST). In this scenario, though, investors are putting money into both the bull and bear sides of the gold trade. Using our back-of-the-envelope calculation based on a hypothetical account size of $2,500, Robinhood investors are responsible for 16 percent of JNUG’s assets and 87 percent of JDST’s assets.
But it’s not simply thematically based plays that are attracting notice. Those betting on a broad market recovery have poured into leveraged large cap ETFs such as the Direxion Daily S&P 500 Bull 3X Shares (SPXL) and the ProShares UltraPro QQQ (QQQQ) (TQQQ). Traders have been drawn to the VelocityShares Daily 2X VIX Short-Term ETN, which provides leveraged exposure to volatility (TVIX).
Despite the popularity of thematic ETFs, many Robinhood traders still want to build a wide U.S. equities allocation.
With 110,000, 96,000, and 60,000 shareholders, the Vanguard S&P 500 ETF (VOO), the SPDR S&P 500 ETF Trust (SPY), and the Vanguard Total Stock Market ETF (VTI) are the second, fourth, and sixth most popular ETFs on Robinhood, respectively.
With 31,000 shareholders, the Invesco QQQ Trust (QQQ), an ETF widely used as a proxy for large size tech equities, isn’t far behind.
Each of these ETFs is a broad-based U.S. stock index ETF that is frequently employed in a diversified asset allocation strategy by buy-and-hold investors.
In addition, several dividend funds are among the most popular ETFs on the platform, indicating a desire for consistent income among Robinhood customers.
The Invesco S&P 500 High Dividend Low Volatility ETF (SPHD), the Vanguard High Dividend Yield ETF (VYM), and the SPDR Portfolio S&P 500 High Dividend ETF (SPYD), which have 75,000, 39,000, and 26,000 shareholders, respectively, are popular dividend ETFs.
Yes, it’s risky to make too many inferences from a single trading platform’s aggregate trading statistics for a single day. Regardless, I’m going to do it.
If we consider Robinhood’s user base to be a proxy for the retail market as a whole, the data appears to confirm what experienced financial advisors already know: retail investors are lured to a good narrative, but they also desire diversification and income preservation.
However, the lack of international focused ETFs, fixed income ETFs, and other asset classes among Robinhood users suggests that more could be done to educate retail or self-directed investors about their options, allowing them to better position their portfolios for retirement or whatever financial goals they may have in the future.
What are 3X leveraged exchange-traded funds (ETFs)?
Leveraged 3X ETFs monitor a wide range of asset classes, including stocks, bonds, and commodity futures, and use leverage to achieve three times the daily or monthly return of the underlying index. These ETFs are available in both long and short versions.
More information on Leveraged 3X ETFs can be found by clicking on the tabs below, which include historical performance, dividends, holdings, expense ratios, technical indicators, analyst reports, and more. Select an option by clicking on it.
What is an exchange-traded note (ETN)?
ETNs (exchange-traded notes) are similar to ETFs in that they are traded on a stock market and track a benchmark index. Unlike an ETF, which holds assets such as equities, commodities, or currencies as the basis of the ETF’s pricing, an ETN is a senior, unsecured debt obligation issued by a bank.
