AMD skyrocketed overnight, the 3x short AMD ETF was "wiped out overnight," and 'volatility panic' has flared up again.

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AMD’s stock price soared as much as 38% on Monday, directly causing GraniteShares’ 3x inverse AMD exchange-traded product to be completely wiped out. This has sounded the alarm for the increasingly hot high-leverage ETF market. The product was forcibly liquidated after its net asset value dropped to zero, bringing to mind the brutal collapse of similar products during the 2018 “Volatility Panic.”

On October 9, according to media reports, this ETF, listed in London and Italy, aimed to provide three times the inverse return of AMD’s stock price, managing about $3 million in assets before closure. GraniteShares announced on its website that, since the NAV has fallen to zero, no redemption payments will be made, trading of the product has been suspended, and it will be delisted according to exchange procedures.

Bloomberg Industry Research analyst Athanasios Psarofagis said, “This proves there is a real blowup risk for 3x stock ETFs.” Analysts warn that, in the current fast-paced market, the collapse of single-stock leveraged products is “almost inevitable”; the only question is when it will happen in the much larger U.S. market.

This event has reignited worries about a repeat of the “Volatility Panic,” when a sudden spike in volatility in 2018 caused short-volatility products to lose more than 90% in a single day. Notably, this blowup event occurred at a key time when multiple issuers were applying to the SEC to launch 3x leveraged single-stock ETFs -- GraniteShares, Defiance ETFs, ProShares, and Direxion among them.

3x Leveraged Product Wiped Out Overnight

GraniteShares’ 3x inverse AMD ETF was completely wiped out this Monday, becoming the latest case study in the risks of highly-leveraged trading products. The product was designed to provide three times the inverse return of AMD’s stock, but AMD’s 38% gain in one day erased all its value.

GraniteShares’ website published a notice: “Since the Net Asset Value (NAV) is now zero, no redemption payments will be made. Trading of the affected ETP has been suspended, and the securities will be delisted in accordance with exchange procedures.” The company’s CEO, Will Rhind, declined to comment on the matter.

Bloomberg ETF analyst Eric Balchunas stated:

“We’ve got our first term event. Europe’s GraniteShares -3x AMD ETP is no more. Mandatory termination, XIV-style ending.”

In February 2018, the market experienced what was known as “Volmageddon,” with a spike in volatility triggering massive losses in short-volatility exchange-traded products, such as VelocityShares Daily Inverse VIX Short-Term ETN (XIV), which lost over 90% of its value in a single day.

At that time, the S&P 500 fell about 4% and billions in investment capital evaporated. These leveraged products, designed to profit from low volatility, collapsed under the stress of unexpected volatility spikes. The event was driven by market concentration and the combination of hedging and leverage rebalancing mechanisms.

The First of Many Leveraged ETF Blow-Ups?

Bloomberg Industry Research analyst Athanasios Psarofagis noted that, this incident proves 3x stock ETFs have real blowup risk, but he doubts even such incidents will deter investors.

Todd Sohn, senior ETF analyst at Strategas Securities, said, in today’s fast-paced environment, single-stock blowups are “almost inevitable.”

The key question is when such incidents will show up in the much larger U.S. market. A month ago, Bank of America had warned that ETPs that could trigger another “Volatility Panic” were on the rise again.

Analysts point out that, although GraniteShares’ ETF liquidation was far smaller in scale than XIV’s collapse in 2018, given the level of retail leverage participation in today’s market, this is expected to be only the first of many leveraged ETF blow-up events in the future.

U.S. 3x Leveraged ETF Filing Wave Draws Attention

The timing of the product blowup is rather ironic, as just days prior, issuers such as GraniteShares had submitted applications to the SEC for 3x leveraged products.

These applications cover some highly volatile stocks like Tesla, Opendoor Technologies, and cryptocurrencies like Bitcoin, Ethereum, and Solana.

While such products already exist in Europe, the SEC’s volatility rules limit fund leverage in the U.S., so they are rarely traded there.

Defiance ETFs’ first application included 3x long and short AMD ETFs, while ProShares and Leverage Shares also have potential 3x AMD ETFs in their filings.

These filings come as 2x leveraged funds have proven very popular with U.S. investors. It’s still unclear how the proposed U.S. products would circumvent the SEC’s volatility controls, but they symbolize issuers being pushed to take greater risks in a fiercely competitive market.

Risk Disclaimer and Exemption ClauseThe market carries risks, and investments should be made cautiously. This article does not constitute individual investment advice nor does it take into account specific investment objectives, financial situations, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular situation. Investing based on this is at your own risk. ```