I have spoken with hedge fund managers that utilize these leveraged ETFs, especially the sector ETFs. The hedge fund manager may use these because they might not be trading enough notional to make it worth the counterparties time to engage in a swap with them. Nor do they want to deal with the operational issues surrounding setting up a swap and maintaining it. They use the ETFs more opportunistically. Not every hedge fund manager manages billions upon billions of dollars.
The traders and MM wait till the end of the day to trade because they do not know the exact amount they will need to buy, for the mutual fund space anyways. They can estimate it by the % move in the market, leverage and the AUM of the funds in which they have swaps, but what they do not know is the amount of purchases or redemptions for the mutual fund that will affect the amount of exposure they will need to get. The purchases and redemptions becomes clearly closer to the end of the day as many of these leveraged shops have a real time cash monitoring system so they have a good estimate of how much money is coming into the fund.
Makes sense. Another point I may add is that you don’t need too much money to move the market. It only takes a few hundred million dollars thrown at some selected stocks to ignite the market.
There will be a few hundred million to buy on a 2-3% up day easily.
Can you give an example of how $100-$200MM thrown at some selected stocks can move the market?
Traders copy each other. Most of technical analysis is based on crowd psychology. All of those principles of support/resistence, breakouts, technical indicators, Fibonacci numbers, Elliot Wave readings, etc., often cause people to take on the same actions. There are also computer applications which are programmed to take certain actions based on stock price behavior, aka program trading. Momentum players haven’t really disappeared with the dot com crash, they are still around. Of course, this is not an easy game to play, but those with deep pockets and high appetite for risk can ignite the market, even if temporarily, by only lighting the match, and the rest of the money instantly comes.