This is the stock we are going to be discussing here. I know you are laughing right now but we suggest reading the rest of this article to really find out how bad NYSEARCA:JDST is.
Yes…that is $347 to $11.75 in less than a year. NYSEARCA:JDST is the Direxion Daily Jr Gold Miners Bear 3x ETF and it is an absolute pig. Like all ETF’s that are priced from their futures, there is a crazy negative drag to these triple leveraged instruments. However, if it is truly a liquid product, we should be adding it to our list because we add every liquid product we can get our hands on. This gives us true diversification.
Without any more hesitation, let’s see if NYSEARCA:JDST is liquid enough to be put on our list of tradable products that we will definitely only be trading from the short side.
Direxion Daily Jr Gold Miners Bear 3x ETF
Now, if we are interested in getting exposure to NYSEARCA:JDST it would mean that we wanted to trade inversely with gold miners in general. Let’s see just how negatively correlated JDST is to the top and most liquid gold miner ETF, GDX.
We can see GDX in the pink and JDST in the red/green. If these are so inverse, why when the pink line goes down, the red/green line goes nowhere? It it because this is a triple leveraged product and has a massive negative drag against it. In short, because it has such a negative drag against itself, we recommend never trading this product from the long side, even before we figure out if it has the proper liquidity or not.
But does it have the proper liquidity for us the trade it from the short side?
Does nysearca:jdst Have Good Enough Liquidity?
In order to find out if this product or any product for that matter has the proper liquidity, we must look at stock volume and options volume.
For stock volume, we are looking for the following two things:
- Bid/ask spread pennies wide
- Volume in the millions
Here we see the bid/ask spread for NYSEARCA:JDST $0.02 wide. This is amongst the top 95 percentile and more than satisfies our first condition.
Second condition time. Let’s see if JDST trades in the millions of shares per day. This would be a sign of participation, competition, and institutional interest.
HELLO. Over twenty million completely satisfies our second condition for stock volume. This screams participation from everyone and their mother. 22,075,368 shares at $12.81 is about $282,785,464.08 in total notional value.
Stock liquidity checks out here. What about options liquidity. We need fair and deep markets to be able to protect our stock positions via options. Here is what we hope to see:
- Volume in the thousands
- Monthly and weekly expirations
- Small bid/ask spreads under $0.10
- Open interest in the thousands
Here we go. What was the volume today in the NYSEARCA:JDST options pit?
Not great but could be worse. We have three other conditions to pick up the slack. Let’s see how many options expiration cycles we have:
There are only monthly expiration cycles. If there was enough demand for them, we would also see weekly and quarterly expirations. But because there is no demand for them they are not available in JDST. This is a sign of lack liquidity in the options market.
But what about the bid/ask spreads? Maybe they are all under $0.10?
Nope. The best we see here is $0.25. These bid/ask spreads and thus options markets are too wide. In order to open a position to hedge our stock =, we would have to take an immediate loss. This is something we are not interested in.
And finally…open interest. If we see open interest in the thousands, we will know we have institutions hedging their positions.
Not quite there. Sorry, Charlie.
What to do About NYSEARCA:JDST ?
Before we get into this, JDST is a 3x leverage instrument that should never be traded from the long side. However, because it has such heavy negative drag, we would love to trade it from the short side if it is liquid enough. Here is how it did on our liquidity test:
- Bid/ask spread pennies wide – pass
- Volume in the millions – pass
- Volume in the thousands – pass
- Monthly and weekly expirations – fail
- Small bid/ask spreads under $0.10 – fail
- Open interest in the thousands – fail
One of the reasons why NYSEARCA:JDST has very little options liquidity is because these ultra-leveraged instruments are only used as intraday traded. Because they carry such a negative drag, very few people will hold these positions overnight, so there is no need to hedge anything and thus, few options traded.
However, if you must trade inversely of gold miners, we suggest you inversely trade GDX. It has insane stock liquidity
and options liquidity.
Since you wanted to trade inversely of gold miners when you set out to trade NYSEARCA:JDST, we suggest selling GDX when it goes higher.
This would give you the same type of exposure when gold miners sell off as you would have hoped to have had in buying JDST.