The riskiest bets are the most popular in the stock market

He invested $15,000 in the ProShares UltraPro QQQ, an exchange-traded product designed to deliver triple the daily returns of the Nasdaq-100 Index, which he calls a “once in a lifetime profit.”

The business has been under water several times, but Mr. Fetter says he expects to keep the shares until his investment reaches $50,000, at which point he will make a down payment on a real estate property. And planning to invest money.

Regarding the 2022 fall in major US indices, Mr. Fetter said, “Things like this are a buying opportunity. He says he has accumulated money in stocks over the years from his earnings at Chick-fil-A and other eateries.” and want something with the potential of high returns.

Mr. Fetter is one of many traders who this year have turned to exotic exchange-traded products designed to bet on everything from stocks to commodities to esoteric financial derivatives. Market volatility triggered by the war in Ukraine, the global outbreak of inflation and questions about the pace of global growth has created a stampede for these risky investments.

Over the coming week, traders will analyze economic data on consumer spending and Friday’s monthly jobs report for clues on the trajectory of the stock market and the health of the economy.

According to data from FactSet, the ProShares UltraPro QQQ has become the most actively traded exchange-traded product this year. On average, more than 119 million shares have changed hands this year, up 65% from last year and one of the highest levels of the past decade. Assets in the fund, known as TQQQ, have risen 58% over the past year to nearly $18 billion as of Thursday. The fund has posted a 32% decline in 2022, compared to the Nasdaq-100 index’s 9.6% decline.

After driving market gains for a decade, tech stocks have lost some of their attractiveness as the Federal Reserve raised interest rates. Higher rates now place a premium on corporate earnings, which makes stocks of firms whose profits may be less attractive in the future.

Three of the other 10 most actively traded exchange-traded products also offer leverage or reversal exposure to the market, allowing investors to bet on rising or declining their investments. As of the end of February, assets under management in the fund that provide such contrast exposure to stocks rose 42% this year from last year and to the highest level since 2011, to $11.5 billion, according to data from Morningstar Direct as of the end of February. Is. Assets in leveraged stock funds have declined over the past year, but remain close to past decade highs.

One such inverse product is the ProShares UltraPro Short QQQ ETF, or SQQQ, which profits from a decline in the Nasdaq-100 index. Tech stocks in the benchmark have fallen this year, prompting bets against the index and helping the fund jump 17%.

According to data provider Wanda Research, both Nasdaq funds are among the top ETFs bought by individual investors this year, behind only funds affiliated with the S&P 500 Index and the Invesco QQQ Trust.

Options activity linked to the TQQQ hit a record on January 24, when the Nasdaq Composite lost up to 4.9% before staging a fiery rally and gained 0.6% for the day, the wildest trading session of the past decade. was one of the sessions. According to data provider Wanda Research, retail buying of leveraged ETFs hit the highest level in at least two years that day.

These products can be some of the most dangerous. Many are designed to be used as short-term trading tools rather than as a place to park cash for the long term. In some cases, holding them for weeks or even days can reduce returns.

Trading activity has also reached higher levels in some of the Cboe Volatility Index, or VIX-linked products. The ProShares Ultra VIX Short-Term Futures ETF, better known as UVXY, has been the third most actively traded exchange-traded product this year. It is a leveraged product that aims to profit from rising volatility, a trade that can quickly backfire.

In Europe, an exchange-traded product known as the GraniteShares 3X Short Nvidia Daily ETP is the second most traded ETP on the London Stock Exchange, FactSet data shows. It is designed to rise when Nvidia Corp. shares have declined and have fallen sharply recently.

The history of risky exchange-traded products is replete with explosions that have left traders with huge losses. A product that bets against the VIX, the VelocityShares Daily Inverse VIX Short Term Exchange-traded Note, was abruptly discontinued in 2018 after a period of volatility that wreaked havoc in the derivatives market.

Just last week, WisdomTree Commodity Securities Ltd. said it would discontinue a product tied to nickel, which provides three times the exposure to the commodity, after the war in Ukraine triggered wild swings in prices and worsened trading. . Earlier this month, the firm said it would stop downtrading in one of its upside nickel bets. Both products were worth “nil” or “less than zero,” the firm said in a notice to investors, adding that “investors should not expect payment for the securities they held.”

A WisdomTree spokesperson said the recommended holding period for short and leveraged products is one day and investors need to understand the products and their risks before investing.

Despite the turmoil, many individual investors say they continue to decline in tech stocks, anticipating a continued rebound in recent weeks.

Joe Basil, a 23-year-old investor who works at an Apple Store in Staten Island, says that when he was first learning about the fund, he was initially faced with loss trading options associated with TQQQ. The fund’s huge boom meant that some of the contracts it bought soon became worthless.

But he has also won. Mr Basil said he was trading bearish options to profit from the fund’s collapse on March 16, when the Fed moved to raise interest rates for the first time since 2018. Contracts jumped more than 60% within hours as rates increased. Stopped intraday volatility in the stock market.

Harold Castrillon, 29, in Astoria, NY, who works in human resources, said he put cash into TQQQ earlier this year. After voting people on the Reddit forum about whether playing the fund was a good idea, he decided to invest about 13% of his portfolio. Ideally, he says, the investment returns would allow him to retire early in the coming years.

“The technology sector has been strong for almost 10 years now and I don’t see why and how this will change,” Mr Castrillon said. “Sure, there’s the risk that it pulls me down further.”

This story has been published without modification to the text from a wire agency feed