Original | Odaily Planet Daily (@OdailyChina)
Author | Azuma (@azuma_eth)
If you were to ask what the most talked-about concept in global capital markets this year is, the answer would undoubtedly be storage.
With the continuous advancement of AI infrastructure construction and a supply-demand imbalance in HBM (High Bandwidth Memory), leading memory manufacturers such as SK Hynix, Samsung, and Micron have become the focus of market frenzy. Surging capital inflows have propelled their stock prices to soar, and despite a recent significant correction, their year-to-date gains remain remarkably high.
When a stock keeps rising, there are always market participants who feel "it's not rising fast enough." Thus, a relatively niche type of product in the past has rapidly entered investors' sights — Single Stock Leveraged ETFs. Unlike traditional ETFs tracking a basket of stocks or an index, these products track only a single stock and use financial derivatives such as swaps and futures to amplify the stock's daily price movement to 2 times or even 3 times. In other words, if the underlying stock rises 10% in a day, the corresponding 2x leveraged ETF should theoretically rise by approximately 20%; conversely, if the stock falls 10%, the product would also incur a loss of about 20%.
For this reason, single-stock leveraged ETFs are becoming a new tool for more aggressive investors betting on popular AI-related stocks. This year, as speculative capital seeking to amplify gains from the AI and storage trends continues to flow in, the scale of single-stock leveraged ETFs targeting hot AI-concept companies like SK Hynix has also been expanding.
However, what many investors overlook is that the other side of amplified returns is risk amplified by the same multiplier. In extreme market conditions, the underlying stock might still rebound, but a single-stock leveraged ETF might not even have the chance to wait for a rebound.
A Vivid Case: The Delisting Journey of a 2x Leveraged ETF
Don't think this is an alarmist warning. A case that occurred during the U.S. stock market session the night before last is enough to reveal just how dangerous single-stock leveraged ETFs can be.
The chart above shows the recent stock price movement of U.S. electric vehicle manufacturer Lucid (LCID). On July 14th local time, rumors suddenly surfaced during the trading session suggesting that Lucid was considering filing for bankruptcy protection. Affected by this negative news, LCID's stock price plummeted by up to 57%, triggering multiple trading halts intraday and marking its largest intraday drop since listing.
However, the plot soon reversed. Lucid subsequently issued a statement clarifying that the company had indeed hired the consulting firm AlixPartners to conduct a comprehensive review of its operations to optimize efficiency, reduce costs, and advance new model development, but the rumors about a bankruptcy filing were "completely false." Lucid also emphasized that it currently possesses sufficient liquidity to sustain operations into next year, and AlixPartners was only engaged for operational optimization work and had not made any bankruptcy recommendations to management or the board.
As Lucid urgently refuted the rumors, market sentiment quickly recovered. Lucid's stock price rebounded all the way from its intraday low, eventually closing with its loss narrowed to about 16%. For investors holding Lucid stock, it was more like a heart-pounding rollercoaster ride.
Yet, for another group of investors, the story ended at the moment of the crash.
During Lucid's plunge, the 2x Long ETF tracking its stock performance — the GraniteShares 2x Long LCID Daily ETF (LCDL) — was directly liquidated. The fund manager, GraniteShares, later confirmed via announcement that the fund had closed all its LCID positions that day. Since its net asset value had turned negative, it would formally initiate the delisting process.
This means that when Lucid's stock price subsequently rebounded sharply, this ETF no longer held any positions to recover its net asset value. For all holders of LCDL, there was no longer any opportunity to participate in LCID's subsequent recovery.
This is precisely the biggest difference between single-stock leveraged ETFs and ordinary stocks. Even if a stock suffers a sharp decline, as long as the company exists, investors still have a chance to wait for a rebound. But once a single-stock leveraged ETF "triggers the death mechanism" during extreme volatility, even if the underlying stock later recovers its losses, investors may never live to see that day.
Social Issues Emerge, The South Korean Government Begins to Fear
The delisting of LCDL is by no means an isolated incident. In fact, as single-stock leveraged ETFs gain rapid popularity on hot AI-related stocks, regulators have begun re-examining the potential systemic risks posed by such products.
Among them, South Korea's stance is particularly representative.
In mid-July, according to a report by The Korea Times, South Korea's Ministry of Economy and Finance, Financial Services Commission, Financial Supervisory Service, and the Bank of Korea — the four major financial authorities — plan to convene a special meeting under the government's Macroeconomic and Financial Issues Coordination Mechanism (F4) framework to discuss the risks of single-stock leveraged ETFs and potential regulatory measures. Market discussions point towards directions such as raising margin requirements, limiting daily price fluctuation ranges, and reducing leverage multiples.
In recent years, as Korean retail investors have continuously poured into the stock market, the AI boom has almost evolved into a nationwide investment frenzy in South Korea. Blue-chip stocks like Samsung Electronics and SK Hynix have become focal points for capital, and leveraged ETFs targeting these individual stocks have further amplified market sentiment and price volatility. Regulators' concern lies in that as more and more investors begin using high-leverage products to chase hot stocks, the impact of a single sharp market fluctuation is no longer just a change in numbers on investment accounts but could potentially escalate into a social issue.
And as the storage concept faces pressure and corrections, extreme incidents have occurred one after another in the South Korean capital market. On one hand, rumors of suicide incidents linked to failed stock investments have emerged on social media; The Chosun Ilbo also reported yesterday that a YouTuber in Busan who runs a stock investment channel was stabbed multiple times on the street by a man in his 20s. Preliminary police investigations suggest the suspect was a subscriber to the channel who harbored resentment and carried out the attack after suffering significant losses by investing in stocks recommended by the creator.
Although the aforementioned incidents were not directly caused by single-stock leveraged ETFs, for regulators, the signals they send are highly consistent — when high-risk investment tools continuously lower the participation barrier and intertwine with dissemination channels like social media and live-streamed stock recommendations, financial risk may ultimately spill over into social risk.
For the South Korean government, this is the most frightening prospect.
