NIO Leverage share

[Supz]

Hello all,

Just had a quick question about NIO 3x Leverage shares. I’m fairly new to this, so I’m just trying to understand how this works. So my basic understanding is it follows its ETF and returns 3x the gain/loss. But I’ve noticed that it doesn’t always follow the same pattern as NIO does. And I don’t mean tiny discrepancies. For example today NIO was up premarket and the ETF was up as well. But just when the US market opened NIO carried upwards before falling but the ETF just dropped around 13% before rising a mere 9%. I understand that the ETF needs to work harder to get back to the previous level and that there are fees and everything. I’m just not sure why that big drop happened when NIO was actually going up?

Any answers would be much appreciated in layman-ish terms.

Thanks

[Rygel]

I’m sure @MarcRAFFARD can help you with this.

[MarcRAFFARD]

Thanks guys for your messages. I will prepare for you an answer that I hope will be very understandable. Your question is one of the most frequent question we have

Btw- 3x NIO ETP is a GraniteShares product, not Leverage Shares
LS and GS are 2 differents entity/issuer… it is like Lyxor and iShares.

[RLX]

@MarcRAFFARD and/or @Tihomir from GraniteShares could help explain.

[MarcRAFFARD]

When it comes to the question of prices differences or differences of the performance… between an ETP and the underlying stock, there are two things to consider. But before going into the explanations, I want to remind you that GraniteShares is not involved into the pricing of ETPs.

The price you trade ETPs and the value per ETPs are two different things. The Price per ETP is the level at which each market participant agrees to buy and sell the ETP. The Value per ETP, which is calculated once a day by GraniteShares, is used for the creation and redemption of ETPs with the Authorised Participant. GraniteShares is involved only on the value per ETP. More information can be found here, there is a video that explain it clearly: Value vs Price

Prices differences (what you saw on your print screen)

To make the price of an ETP tracking US underlying Stock during European hours, the Market Maker will use the share prices quoted on the European markets. For example, Tesla is listed/quoted in German Exchange. For NIO Inc. is listed/quoted in Euronext Paris.

When US market hours start, the Market Maker will use the price of the underlying stock on NYSE.

As you can see on this chart, NIO stock price falls just before US market opening. This is why the ETP falls just before US market opens.

Then, the price start following NYSE.
if I take your example, we can see the movement to open US markets (see below)

[RLX]

@MarcRAFFARD

Thanks guys for your messages. I will prepare for you an answer that I hope will be very understandable. Your question is one of the most frequent question we have

Btw- 3x NIO ETP is a GraniteShares product, not Leverage Shares
LS and GS are 2 differents entity/issuer… it is like Lyxor and iShares.

You were faster than I. You are a fast keyboard writer

[MarcRAFFARD]

Difference of the Performance

You may notice difference of the performance between the ETP and the Stock… this can happen with Leverage and Short ETPs of US underlying stocks that are listed in Europe => this is due to the time difference. The time difference implies a difference in the daily performance. A European Exchange, such as the London Stock Exchange, publishes the closing price per ETPs around 16:30 GMT. At that time the Index Closing Level used to determine the Value per ETPs will be calculated later on (assets trading in U.S. for instance).

To give you an example:
Supposing an US stock XYZ moving up by 5% during US Trading Hours. But only up by 2% during the 1st part of US Trading which overlaps European Trading hours. In that case, there is 3% difference between the end of UK Trading hours and the end of US Trading hours. What will happen?

Next day, London Stock Exchange opens at UK Market hours. Leveraged ETP tracking that stock will perform by +9% and this difference will be visible all the day. If after US market opens, the XYZ Stocks falls by -2%… you will see a negative performance (-2%) with the Stock and still a positive performance (+3%) on the ETP. That’s why some time, the performance of the Long ETP is positive when the stock fall (negative performance).

This is a theoretical example since in reality the price will still move in the morning during London hours, and it will not stay at + 9% until the US opens. But I hope this example is clear enough to give you a better understanding of how time differences can impact ETP performance.

[Supz]

Thank you very much for the reply Marc. Can i ask you another question please? The NIO ETF trades on the LSE and closes at 16:30 UK time, and NIO in the NYSE continues trading. So when LSE opens the next morning does it continue to track NIO where it left off the previous day? If it does then that accounts for the rise in the ETP this morning of around 30% because NIO traded higher yesterday. But then when the markets opened in the US today, NIO opened ~ 6% higher before dropping a little, but the ETP only dropped ~6% but did not account for the higher opening price. So what I am confused about is (and the same goes for yesterday’s pattern), why did the ETF not track the higher opening price of NIO when market opened? The rest of the day goes by perfectly fine. It’s just the opening price that it misses to track. You can see this in the attached image for today’s price movement as well. I might be missing something here for which I apologise in advance, just trying to learn from the experts. Thanks

[Tihomir]

@Supz Thank you for your interest in GraniteShares ETPs.

The performance levels could differ for two reasons:

1. Different time zones: NIO trading during US hours while GraniteShares NIO ETPs trading GMT.
2. Activity at close: Exchange closing prices are determined through an auction process. The level of activity during the auction process can sometimes lead to a closing price different from the expected value.

First potential large move of the Price per ETP is whenever the stock market opens 8:00 GMT on the LSE. It tends to move to match the variation in the NIO price between 16:30 GMT and closure for the previous day. Unless, there has been some other big news since. Second potential large move is when the US markets open, around 14:00 GMT.

Usually, NIO pre-market price is being factored in to a reasonable extent by market makers. Before US opens, market makers have an idea if NIO is moving much either way and so the price after the first jump at 8:00 GMT until 14:00 moves a bit to take that into account. Hence, in order not to miss the main movement, the ETP can be hold overnight.

However, please note that due to the compounding effect, holding the ETP for a period longer than a day will cause the leveraged return to deviate.

In order to check whether the leveraged returns are in line, you can compare the Value per ETP between two consecutive dates. This information can be found on our website in each product page.