Trackinsight: Traders play the falling markets with inverse ETFs

Bears have been piling up on short or short and leveraged ETFs to profit from the economic and geopolitical turmoil.

Reddish market tilt investors toward short and inverse ETFs

Bears have been piling up on short or short and leveraged ETFs to profit from the economic and geopolitical turmoil in this new gloomy year. Bets of a Russian invasion have been on point after Russian President Vladimir Putin announced on Thursday a military operation in Ukraine.  Footage of Russian forces advancing and firing missiles at several cities in Ukraine have emerged — leaving no doubts that markets will be heading into a whirlpool.

This year, the S&P 500, the Nasdaq 100, and the Russell 2000 have fallen by -11%, -17%, and -13% respectively as tensions built up, making them viable short targets through ETFs. In Europe, Russian MOEX took a -42% plunge this week alone, while Europe's STOXX 600 reacted with a -6% decline over the same period. On the Energy commodities front, fears of dwindling natural gas supplies as a result of the Russian invasion and looming sanctions have sent UK Gas and EU Gas (TTF) futures higher by +60% over the past week, while U.S. natural gas futures gained +8%. Brent and WTI oil futures hit $100 per barrel for the first time since 2014 as they went up by over +10% this week.

America-domiciled Short or Inverse ETFs gain traction

Short ETFs domiciled in America have received over $2.3 billion in net inflows this year. Among the biggest receivers are ProShares UltraPro Short QQQ (SQQQ, $535 million), ProShares UltraShort S&P500 (SDS, $509 million), ProShares Short S&P500 (SH, $440 million), ProShares Short QQQ (PSQ, $401 million), Direxion Daily S&P 500® Bear 1X Shares ETF (SPDN, $113 million), and ProShares Short RUSSELL2000 (RWM, $105 million).

Europe-domiciled Short or Inverse ETFs gain traction

This year, European traders have poured $50 million into Xtrackers S&P 500 Inverse Daily Swap UCITS ETF (XSPS), $28 million into WisdomTree Natural Gas 3x Daily Short (3NGS), $28 million into Xtrackers ShortDAX x2 Daily Swap UCITS ETF (XSD2), and $20 million into WisdomTree WTI Crude Oil 1x Daily Short (SOIL). While bets against U.S. and EU indices have paid off this year with rising inflation and the ongoing crisis with Russia — traders have suffered major losses betting against soaring oil & gas prices with 3NGS and SOIL losing more than -70% and -20% respectively.

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