Tiny imploding Russia fund draws rush of options bets

© Reuters.

By Saqib Iqbal Ahmed

NEW YORK (Reuters) - Options on a small, soon-to-be defunct exchange-traded fund tracking Russian stocks drew a rush of trading on Tuesday, as investors placed bets on what the fund's shares will do in its last few days of trading.

The surge in trading came a day after fund issuer Direxion said its Russia 2x ETF, which seeks to deliver two times the daily performance of the MVIS Russia Index, would cease trading on March 11, due to heightened volatility and restrictions on Russian securities imposed in the aftermath of Russia's invasion of Ukraine.

The ETF, which had assets of about $55 million as of Monday, slumped nearly 61% in price to $3.76 on Tuesday. Some 145,000 RUSL options changed hands on Tuesday. By comparison, the ETF's options have traded only about 32,000 over the entire last four years, according to Trade Alert data.

The slew of options bets into the fund shows how some investors were looking to profit from the chaotic trading of Russia related assets, as investors flee assets linked to the country amid a slew of sanctions by the West and its allies.

U.S.-listed ETFs on Russian stocks have come under intense selling pressure in recent days, as investors flee assets linked to the country amid a slew of sanctions by the West and its allies. Shares of the Vaneck Russia ETF, for example, are down more than 65% over the last eight sessions, including a slide of about 24% on Tuesday.

"It's possible traders are taking advantage of the volatility, playing the momentum," said Susquehanna International Group’s Chris Murphy.

Shareholders of the U.S.-listed ETF will receive an as-yet-undetermined amount of cash against any shares they hold, on or about March 18, Direxion said in a news release late on Monday.

"I think it's a gambling play," said Steve Sosnick, chief strategist at Interactive Brokers (NASDAQ:IBKR) and a former options market maker. "You could see this thing bouncing around ... up 100% and then down 50% for the next 10 days," he said.

The ETF's 30-day implied volatility was at 340%, the highest since the pandemic-driven selloff in early 2020.

Some traders appeared to be betting that the final value for the ETF will be lower by the last day of trading on March 11, said Garrett DeSimone, head quant at OptionMetrics.

Given the relatively small size of individual trades, it is likely that much of the trading was driven by retail players looking to make a quick profit as the stock gyrates wildly, said Murphy.

That is in line with a growing trend that in which retail traders, who until recently had been enamored with the so-called meme stocks, increasingly turn their attention to securities that track the broader market, Murphy said.

"As everything goes toward the macro, the geopolitical and the Fed ... we are possibly seeing retail traders move more toward the macro-focused products because that's all that matters right now," Murphy said.