Banks Offload Risk from Leveraged ETFs With Exotic ‘Crash Puts’

Banks are using derivative contracts known as crash puts to hedge their exposure to leveraged exchange-traded funds, according to market participants. These instruments allow banks to transfer potential losses from sharp market declines to other investors. Leveraged ETFs amplify daily returns of underlying stocks or indexes, typically by two to three times, and require constant rebalancing to maintain their leverage ratios. The strategy reflects banks' efforts to manage risk from increased demand for these products among retail investors.

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