fbpx

Part 4: A Built-in Airbag to Limit Losses

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Our Short & Leveraged Single-Stock ETPs could be challenging for some investors looking for new innovative products to add to their portfolio. In this six-part educational series, we describe the idea behind our products, their construction, features and their benefits to investors as well as when compared to other similar-seeming products.

Contents
  1. Scenario 1: “Skid”
  2. Scenario 2: “V-shaped Rebound”
  3. “Airbag Mechanism” Performance Explained

Leverage Shares ETPs come with a variety of leverage factors – offering amplified returns with a simple trade. As we know, however, there’s no such thing as a free lunch: using additional exposure is coupled with taking on additional risk. Capturing the trend could prove lucrative but mistiming the move could magnify losses in the blink of an eye.

In theory, a 3x leveraged product could become worthless if the underlying stock lost more than 1/3rd of its value during the trading day.

This is why Leverage Shares ETPs come equipped with an “airbag mechanism” built into the methodology of the indices they track and into the administration of every product so they can replicate it as best as possible. This feature is triggered when the underlying stock loses more than x% (in leveraged indices) or appreciates by more than x% (in short indices) during a trading session compared to previous day’s close. Trading is then halted while prices are recalculated tick-by-tick for a short period of time (about 10-15 minutes). The recalculation is done using the prices of the underlying shares over this time. Trading then resumes as if it is a brand-new trading day.

The respective trigger values for most (but not all) of the Leverage Shares ETPs are:

Leverage Factor Trigger Value (x)
21 -25%
3 -16.67%
-1 50%

This feature has unique characteristics, depending on the scenario.

Scenario 1: “Skid”

Let’s consider a hypothetical stock traded in NYSE with a previous day close of $350 and an initial 3x ETP set at $100. In this scenario, the stock experiences a decline in price during the day and finishes 32.67% down from its previous close. A 3x ETP without the “airbag mechanism” would haemorrhage in value and be close to wiped out, losing a theoretical 32.67% x 3 = 98% of its value.

However, with the “airbag mechanism” enabled, the ETP is rebased at 11:30 (assuming the underlying stock had fallen 16.67% by 11:15) and the 3x ETP is reset and the rest of the session treated as a brand-new day. There is another reset at 13:30 (when the stock decreases another 16.67% relative to the price at first reset) and the 3x ETP is reset once again. The third reset happens at 16:00 and the 3x ETP is reset again. As a result of the intraday rebalances, the 3x ETP is down only 68% by the end of the day. This ‘intraday rebalance’ can occur multiple times throughout the trading day (i.e. every time the underlying drops by 16.67%).

Scenario 2: “V-shaped Rebound”

Once again, let’s consider a hypothetical stock with a previous day close of $350 and an initial 3x ETP set at $100.

In this scenario, the stock has a steady decline down to the 16.67% threshold by 11:30, which triggers the reset. Following the rebalance, however, the underlying stock gradually climbs back and actually closes +0.5% for the day. This means that a 3x ETP with a starting value of $100 without the “airbag mechanism” would have added 1.5% in value.

Following the intraday rebalance, the rest of the trading session after 11:30 is treated as a brand-new day, the 3x ETP is down 23% by the end of the day.
“Airbag Mechanism” Performance Explained

When the feature is triggered, the end-of-day effects can be summarised as follows:

  1. If the underlying stock moves up after the intraday rebalance, the ETP may make less than the expected gains of a leveraged ETP without an “airbag”.
  2. If, however, the underlying stock keeps moving down after the rebalance is triggered, the ETP may lose less more than a leveraged ETP without an “airbag”. If the stock decline is severe, the “airbag” may prevent the ETP from crashing intraday and becoming worthless.

The performance drag of the leveraged ETP “airbag” following an intraday rebalance is essentially the insurance incurred by the investor to prevent potentially devastating losses. This insurance stays activated during the NYSE’s market hours.

It also bears noting that while all stocks have intraday directional volatility, the magnitude of the movement required to trigger the “airbag mechanism” is quite substantial. Also, the portfolio manager for the Leverage Shares ETP will trade the underlying stock during the rebalance period with a view to replicate the index rebalance as close as possible. However, since the resulting index value is a theoretical calculation using prices observed only ex-post, the Leverage Shares ETP will not perfectly replicate the index rebalance.

Investors in leveraged ETPs should be aware of the risks involved, as the leverage amplifies the price movements in the underlying shares.
1For the following underlying stocks, the 2x Leverage Shares ETP have a trigger of -20% as per the index provider’s guidelines: Microsoft, Facebook, Visa, Apple , Salesforce.com, Netflix, Amazon, Citigroup, Goldman Sachs, JPMorgan, Alphabet and NVIDIA.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Related Posts

Market participants bet on a Fed Pivot, are they right this time?
Market participants bet on a Fed Pivot, are they right this time?
Violeta-540x540-1.jpg
Boyan Girginov
Market participants bet on a Fed Pivot, are they right this time?
Market participants bet on a Fed Pivot, are they right this time?
Market participants bet on a Fed Pivot, are they right this time?
Bonds marks best month is 4 decades. Rally fuelled by expectations of US rate cuts.
Bonds marks best month is 4 decades. Rally fuelled by expectations of US rate cuts.
Violeta-540x540-1.jpg
Boyan Girginov
Bonds marks best month is 4 decades. Rally fuelled by expectations of US rate cuts.
Bonds marks best month is 4 decades. Rally fuelled by expectations of US rate cuts.
Bonds marks best month is 4 decades. Rally fuelled by expectations of US rate cuts.
The anticipated decline in both the US dollar and interest rates propelled gold higher.
The anticipated decline in both the US dollar and interest rates propelled gold higher.
Violeta-540x540-1.jpg
Violeta Todorova
The anticipated decline in both the US dollar and interest rates propelled gold higher.
The anticipated decline in both the US dollar and interest rates propelled gold higher.
The anticipated decline in both the US dollar and interest rates propelled gold higher.
S&P 500 up 8.9%, boosted by lower bond yields. December strong for equities.
S&P 500 up 8.9%, boosted by lower bond yields. December strong for equities.
Violeta-540x540-1.jpg
Boyan Girginov
S&P 500 up 8.9%, boosted by lower bond yields. December strong for equities.
S&P 500 up 8.9%, boosted by lower bond yields. December strong for equities.
S&P 500 up 8.9%, boosted by lower bond yields. December strong for equities.
Leverage Shares ETPs vs Other Leveraged ETPs
Leverage Shares ETPs vs Other Leveraged ETPs
Violeta-540x540-1.jpg
Oktay Kavrak
Leverage Shares ETPs vs Other Leveraged ETPs
Leverage Shares ETPs vs Other Leveraged ETPs
Leverage Shares ETPs vs Other Leveraged ETPs
How Do Leverage Shares ETPs Trade in Multiple Currencies
How Do Leverage Shares ETPs Trade in Multiple Currencies
Violeta-540x540-1.jpg
Pawel Uchman
How Do Leverage Shares ETPs Trade in Multiple Currencies
How Do Leverage Shares ETPs Trade in Multiple Currencies
How Do Leverage Shares ETPs Trade in Multiple Currencies
ETF vs ETP: What they are and how do they differ?
ETF vs ETP: What they are and how do they differ?
Violeta-540x540-1.jpg
Violeta Todorova
ETF vs ETP: What they are and how do they differ?
ETF vs ETP: What they are and how do they differ?
ETF vs ETP: What they are and how do they differ?
A quick primer on leveraged instruments available in markets today.
A quick primer on leveraged instruments available in markets today.
Violeta-540x540-1.jpg
Sandeep Rao
A quick primer on leveraged instruments available in markets today.
A quick primer on leveraged instruments available in markets today.
A quick primer on leveraged instruments available in markets today.
Market participants bet on a Fed Pivot, are they right this time?
Market participants bet on a Fed Pivot, are they right this time?
Violeta-540x540-1.jpg
Boyan Girginov
Market participants bet on a Fed Pivot, are they right this time?
Market participants bet on a Fed Pivot, are they right this time?
Market participants bet on a Fed Pivot, are they right this time?
Bonds marks best month is 4 decades. Rally fuelled by expectations of US rate cuts.
Bonds marks best month is 4 decades. Rally fuelled by expectations of US rate cuts.
Violeta-540x540-1.jpg
Boyan Girginov
Bonds marks best month is 4 decades. Rally fuelled by expectations of US rate cuts.
Bonds marks best month is 4 decades. Rally fuelled by expectations of US rate cuts.
Bonds marks best month is 4 decades. Rally fuelled by expectations of US rate cuts.
The anticipated decline in both the US dollar and interest rates propelled gold higher.
The anticipated decline in both the US dollar and interest rates propelled gold higher.
Violeta-540x540-1.jpg
Violeta Todorova
The anticipated decline in both the US dollar and interest rates propelled gold higher.
The anticipated decline in both the US dollar and interest rates propelled gold higher.
The anticipated decline in both the US dollar and interest rates propelled gold higher.
S&P 500 up 8.9%, boosted by lower bond yields. December strong for equities.
S&P 500 up 8.9%, boosted by lower bond yields. December strong for equities.
Violeta-540x540-1.jpg
Boyan Girginov
S&P 500 up 8.9%, boosted by lower bond yields. December strong for equities.
S&P 500 up 8.9%, boosted by lower bond yields. December strong for equities.
S&P 500 up 8.9%, boosted by lower bond yields. December strong for equities.

Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Julian Manoilov

Marketing Lead

Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Oktay Kavrak

Head of Communications and Strategy

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

Markets vs the Fed

Bonds Rally

Gold Soars to Record Highs

How do Leverage Shares ETPs differ from other leveraged ETP issuers

How Do Leverage Shares ETPs Trade in Multiple Currencies

What is the difference between ETF and ETP?

Build your own ETP Basket
Leverage Shares: Europe’s top leveraged and inverse ETP provider.
Main ETP benefits
Common investor questions

Get the Newsletter

Never miss out on important announcements. Get premium content ahead of the crowd. Enjoy exclusive insights via the newsletter only.

Upcoming Webinar

Why Invest in Commodities?

by Violeta Todorova & Sandra Ivanova

06.12.2023
3.00 AM GMT

Welcome to Leverage Shares

Terms and Conditions

Notice

If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.

If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

Leverage Investment

Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

Cookies

Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2. 

By clicking you agree to the Terms and Conditions displayed.