If you ever follow the FAS and FAZ Direxion 3x Bear/Bull Financial Sector ETF, you probably saw in the news yesterday and in their share prices today that they went through a reverse 5 for 1 split.
I\’m sure that Direxion was finding it difficult to earn the percentages through options trade that the ETF promises. That and maybe they can make it more attractive and competitive with other popular ETFs (basically every other one.)
Why Doesn\’t It Make Sense
If you owned share before the split and own them now, you are now getting 1/5 of the performance (because you own 1/5 of the shares.) While the target performance is the same, you\’ve effectively lost a lot of your leverage and position. I would also suggest that the effective price increase will hurt volume over the next several weeks as it is now more expensive to trade the same number of shares.
Compared to stocks
Normally when a company splits or reverse splits there is no dilution, and post split an owner would own the same amount of equity in the company, meaning that the risks and rewards are basically in the same position. There is no inherent additional value in the split FAS and FAZ, because the ETF still seeks the same objectives.
So essentially, yeah, you just got robbed a little.