ETF provider GraniteShares, which offers a range of 3x short and 3x leveraged ETPs on popular UK and US stocks listed on London Stock Exchange, which includes exposure to Rolls-Royce, says traders and sophisticated investors traded record volumes of its ETPs, led by interest in Rolls-Royce.
During the week ending 9 October,the share price of Rolls Royce increased by 96.5 per cent, marked by moves of 24.7 per cent on Thursday, 21.6 per cent on Tuesday, and 14.3 per cent on Friday.
On Tuesday 6 October, turnover was GBP1,185,819.28 in the 3x long Rolls Royce ETP (3LRR) on London Stock Exchange and by Friday the daily volume hit GBP4,784,934.28 with over 407.3 million securities traded. On the week, the 3x long Rolls-Royce ETP rose by 483.7 per cent.
On the back of deteriorating outlook and stressed balance sheet as a result of the Coronavirus crisis, the Rolls-Royce (LSE: RR.) share price has been under pressure. It hit a 52-week low on 2 October after it announced a deeply-discounted rights issue and commencement of a bond offering as part of its recapitalisation. However, some investors clearly saw this low as a good entry point and the share price rallied strongly over the week, starting with an 8.6 per cent rise on Monday. For sophisticated investors and traders, GraniteShares ETPs magnify the daily price moves in the underlying stock and therefore can be a good way to take positions to capture short-term price moves.
GraniteShares 3x Long Rolls-Royce Daily ETP is a collateralised, Exchange-Traded Product (ETP). It tracks, excluding fees and other adjustments, the performance of the Solactive Daily Leveraged 3x Long Rolls-Royce Holdings plc Index that seeks to provide 3 times the daily performance of Rolls-Royce Holdings plc shares. For example, if Rolls-Royce Holdings plc rises by 1 per cent over a day, then the ETP will rise by 3 per cent, excluding fees and other adjustments. However, if Rolls-Royce Holdings plc falls by 1 per cent over a day, then the ETP will fall by 3 per cent, excluding fees and other adjustments.
Will Rhind, Founder and CEO of GraniteShares, says: “Rolls-Royce and its employees have had a very difficult year with the collapse in commercial air travel. It is taking a number of measures to help strengthen its financial position from announced job losses to the hoped-for disposal of non-core assets. The recapitalisation, which includes the rights issue, is a core part of these restructuring efforts. We will know in the coming weeks how successful the recapitalisation has been. In the meantime, it is evident that many sophisticated investors have seen the price weakness as a buying opportunity. The question remains as to whether this is a short-term relief rally or the start of longer-term recovery in the share price.
The ongoing pandemic, the looming US presidential election and no sight of an EU-UK trade deal are among many factors that suggest we will see continued above-average levels of volatility in individual stocks and markets over the coming months. Volatility creates opportunities for sophisticated investors, both to implement directional views and to hedge risks. Products such as our short and leveraged single stock ETPs can help them implement different strategies. The volume of our short and long single stock ETPs traded has picked up significantly since the end of the summer with value traded being 398 per cent higher in September than it was in August. At the current run rate October is going to be an even busier month.”
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