No arbitrage play on NUGT and GDX, Direxion funds are a scam, precious metals market manipulation

Direxion Daily Gold Miners Index Bull 3X Shares NUGT is a leveraged fund that very basically aims to mimic the movement of VanEck Vectors Gold Miners ETF GDX at triple the rate.

So, if GDX goes up 5%, then NUGT roughly goes up 15% give or take, minus much higher expenses principally due to interest on the leverage (which is getting smaller by the way with rate cuts, hence more speculation fueled frenzies to come!) and the spreads on various instruments the fund uses to perform the trades.

Year to date, it has predictably been hovering around 3× … except for today at opening:

Why is NUGT trading radically different from 3×NGX?

Is this presenting a big arbitrage opportunity?  I couldn’t find any reason why these two would present such a disconnect for a high volume trading day (as it has been in the past week). Most of the noise where the ratios are much further away from 3 is when the stocks close close to zero percent change, which makes sense as floating point accuracy is discarded when dealing with numbers like 0.0001… etc.

I have shorted NGX and bought NUGT at a ratio of 3:1.  Let’s hope this play ends up in the green by the end of the day.

Copypasta from an unknown source regarding DUST and NUGT discrepancy versus GDX:

I talked to Direxion in AM. They said end of day NAV supposed to reflect daily inverse gain/loss of GDX. BUT due to market condition NAV value is falling which is beyond their control. I asked if prospectus mention this fact. He went silent. He also said if you wait, the premium will adjust during the market hours so it will gain some lost intra-day value.

GDX is down 17% today, which means DUST should rise 51%. But premium of the underlying futures/options is eaten out. These managers don’t know what to do. A bad product in a volatile time.

How is it that both DUST and NUGT are in the red in the same day, and NUGT down more than DUST when GDX is up by more than 6%?  Neither vehicle is doing remotely near what they promise today.  Direxion is just asking to be sued if the discrepancy doesn’t dissipate.

Edit (added 12 pm):

From Direxion:

DIREXION SHARES ETF TRUST
Supplement dated March 17, 2020 to the
Summary Prospectuses and Prospectus
for each 3X series of the Direxion Shares ETF Trust (the “Trust”)
Effective immediately, the following risk is added to the Summary Prospectuses and summary section of the Prospectus for each series of the Trust:
Market Disruption Risk – Geopolitical and other events, including public health crises and natural disasters, have recently led to increased market volatility and significant market losses. Significant market volatility and market downturns may limit the Fund’s ability to sell securities and obtain short exposure to securities, and the Fund’s sales and short exposures may exacerbate the market volatility and downturn. Under such circumstances, the Fund may have difficulty achieving its investment objective for one or more trading days, which may adversely impact the Fund’s returns on those days and periods inclusive of those days. Alternatively, the Fund may incur higher costs (including swap financing costs) in order to achieve its investment objective and may be forced to purchase and sell securities (including other ETFs’ shares) at market prices that do not represent their fair value (including in the case of an ETF, its NAV) or at times that result in differences between the price the Fund receives for the security or the value of the swap exposure and the market closing price of the security or the market closing value of the swap exposure. Under those circumstances, the Fund’s ability to track its Index is likely to be adversely affected, the market price of Fund shares may reflect a greater premium or discount to NAV and bid-ask spreads in the Fund’s shares may widen, resulting in increased transaction costs for secondary market purchasers and sellers. The Fund may also incur additional tracking error due to the use of futures contracts or other securities that are not perfectly correlated to the Fund’s Index.
The recent pandemic spread of the novel coronavirus known as COVID-19 has proven to be a market disrupting event. The impact of this virus, like other pandemics that may arise in the future, has negatively affected and may continue to negatively affect the economies of many nations, companies and the global securities and commodities markets, including by reducing liquidity in the markets. Adverse effects may be more pronounced for developing or emerging market countries that have less established health care systems. How long such events will last and whether they will continue or recur cannot be predicted.
For more information, please contact the Funds at (833) 547-4417

End of trading day final edit: well, the ratio somehow diverged even further, but I managed to break even after staggered closings given the volatile range GDX and NUGT were trading in.  My recommendation is stay far away from Direxion (sadly I still own some of their funds expecting short term jumps in miner stocks, but now that I know that negative returns are even possible when GDX trades positive short-term is enough for me to never put more money into a Direxion fund ever again).

Their last minute, retroactive press release “effective immediately” of the newfound risks is wholly unacceptable.  You just can’t blame a poorly managed fund on the Coronavirus, particularly since they also manage the inverse fund DUST.  These two funds should be able to work in tandem to prevent such a lopsided day where both NUGT and DUST return negative, when GDX was up over 10%!  What a scam, and their recent sly insertion of risk into their prospectus solidifies their deserved reputation as a crooked company.

*     *     *

Copypasta from an unknown source regarding metals manipulation:

This current week was scheduled for another FOMC meeting. The meeting was supposed to begin on Tuesday the 17th and wrap up on Wednesday the 18th. Given the economic devastation being wrought by the coronavirus, the expectation was for an announcement of a massive new QE program and extended fed fund rate cuts.

But here’s the thing….Sensing the dire situation, the Fed decided to scrap the schedule and…WITHOUT INFORMING THE PUBLIC…moved up to Sunday the 15th the FOMC meeting scheduled for this week.

You know the rest. Chairman Powell announced the expected rate cuts and QE program at a hastily called press conference on Sunday afternoon, March 15.So do you want to know what I think led to the 12% price smash in COMEX gold last week?

Many of the same Banks that control The Fed and many of the same Banks that are Primary Dealers for US Treasury auctions also have operations in bullion banking in New York and London. These banks include JPMorgan, Morgan Stanley and Citi…as examples. As such, these Banks maintain massive NET short positions in COMEX gold and silver. And at least one of these Banks is being actively investigated by the U.S. Department of Justice on racketeering charges due to their past practices of blatantly manipulating the trading of precious metals futures contracts on the COMEX.The market data provided by the U.S. CFTC is deliberately sparse and opaque. However, when these Banks are grouped together with other firms that actually seek to provide legitimate hedging and trading facilities, the CFTC categorizes them as “Commercials”. And on the Commitment of Traders report surveyed on Tuesday March 10, these combined “Commercials” in COMEX gold were NET short 328,304 contracts.

Each contract is alleged to represent 100 ounces of gold…so…doing the math…as of March 10…these “Commercials” were NET short 32,830,400 ounces of COMEX gold. That means:

Every $1 rally from the Comex close of $1660 on March 10 was a NET paper loss of nearly $33,000,000
Every $10 rally from the COMEX close of March 10 was a NET paper loss of $330,000,000
And a rally from $1660 to $1690 would add another cool $1,000,000,000 to an already-hefty pile of paper losses.
So, when The Bullion Banks got the inside, secret word of rushed forward FOMC schedule, they KNEW they had to act fast. If COMEX gold remained near $1640 and then blasted $100 higher on the FOMC news, the “Commercials” would have added another $3.3B in paper losses heading into the end of the first quarter.

Instead, by taking immediate action, The Banks not only reset price $150 lower BEFORE the FOMC news rally could begin, they also were able to cover an untold number of their short positions by taking the buy side of the Spec liquidation selling they had engendered by using all of the same dirty tricks (spoofing, etc) for which they are currently under federal investigation.what gold investors witnessed last week was blatant overt price manipulation that was taken by Bank trading desks after they had received inside word of a change in the FOMC calendar.

In the end, for long-term gold investors, what you’ve just read hardly matters. Though The Banks may have bought themselves some time and lessened some of their potential losses, it’s undeniable that significantly higher gold prices are coming over the horizon in 2020 as the global central banks rush to devalue their currencies by funding the TRILLIONS in government spending that will be needed to overcome the economic devastation of the coronavirus.

To that end, this latest criminal price manipulation effort by The Banks is actually a gift for gold (and silver) investors. Once rational thought returns to the global markets, the economic reality of these ongoing Central Bank actions will sink in. When it does, the demand for gold and silver in all their forms will likely skyrocket.

0 thoughts on “No arbitrage play on NUGT and GDX, Direxion funds are a scam, precious metals market manipulation”

Leave a Reply

%d bloggers like this: