An exchange-traded product (ETP) listed in the UK, betting on a decline in Tesla's stock price, will undergo a 606-for-1 reverse split. The price of the ETPs plummeted as Tesla's stock rebounded, raising the possibility of delisting. Due to the significant reverse split, it may appear that prices have skyrocketed, so investors need to exercise caution.
According to the financial investment industry on the 18th, Leverage Shares, Europe's largest provider of leveraged ETPs, announced its decision to consolidate the 'Tesla Minus (–) 3X Short ETP' series listed in the UK and Germany. The purpose is to improve liquidity and enhance transaction efficiency.
With this ETP undergoing a 606-for-1 consolidation, the price per share will rise from $0.091 to around $55. The effective date is set for the 20th.
Leverage Shares' Tesla -3X Short ETP is widely known among aggressive investors in Korea under tickers TS3S, TSLQ, and 3STL. While all of them are structured to inversely track Tesla's daily stock price change by a factor of three, there are differences in the transaction currency, with each being in dollars, pounds, and euros, respectively.
Tesla's stock price dropped from $428.22 in January to $221.86 in early April before rebounding, and since June, it has been hovering between $300 and $340. During this period, the TS3S stock price rose from $0.3 to over $1, but has plummeted to $0.08 this month.
As a result of this consolidation, some investors are expected to incur losses. Investors holding fewer than 606 shares of the Tesla -3X Short ETP will receive cash settlement.
It should also be noted that there is a lag of about 3 to 5 transaction days for the balance to be reflected. Temporarily, returns may be displayed as exceeding 60,000%. Furthermore, trading will not be possible until all rights information is reflected. In simple terms, if Tesla's stock price rises further during this period, additional losses may occur. Trading is expected to be possible after the 25th to 27th.
The reverse split of leveraged and inverse products is usually carried out to prevent excessive decline in stock prices leading to delisting, known as the 'negative compounding effect.' This indicates that leveraged investment products can structurally incur significant losses.
In January this year, the Leverage Shares' 'IONQ 3X ETP' (ION3), which tracks the stock price increase of IonQ by three times, saw a drop of over 40% in a short period, resulting in losses exceeding 100%, and was delisted from the London Stock Exchange. At that time, investors lost their entire principal.
Jeon Gyun, a researcher at Samsung Securities, noted that 'leveraged and inverse products should be used as short-term investment tools when the trend of the underlying asset's price reverses,' adding, 'During periods when a trend is established, losses can accumulate.'