3x Short Financial ETF (FAZ) Volume Is Largest Yet

I was looking at the volume on FAZ (FAZ) over the last couple of days. Yesterday, the volume was 350mm and today the volume was 320mm. That’s huge volume. I definitely feel that this is contributing to the swings in the financials. As people buy the FAZ, the firm has to enter into derivative contracts with its’ lending institution. The lending institution must somehow hedge the position in the equity markets. This hedging is creating huge swings in the financials.

By comparison, the SKF - 2x short the financials trades about 60m shares. The volume in the 3x short financials is approx 5x as much. Both of these instruments contribute to the market volatility. The true measure of sucess will be, whether or not either of these firms’ counterparties will be able to payoff the derivative contracts that they are writing. Time will tell.

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