The daily 2X SK Hynix ETF, ticker SKHL, launched today. It gives 2X exposure to SK Hynix, tied to the company's new US-listed ADR. That ADR is the biggest ADR listing ever seen. The stock is under pressure today, down about 9%.
Why this product exists
Direxion is the leader in leveraged single-stock ETFs and focuses heavily on the semiconductor crowd. Its largest fund is SOXL, a triple-leveraged semiconductor ETF. Adding leverage to SK Hynix gives traders another way to play a single name leading the memory trade.
SK Hynix is known for HBM, or high bandwidth memory. A memory bottleneck over recent months pushed its price up almost straight-line, or parabolic. The three big players in memory are Micron, SK Hynix, and Samsung. Direxion already offers MU (the transcript says MUU), a leveraged Micron product it calls the largest single-stock ETF in the US and the main way US traders have played the memory trade. With SK Hynix now trading in the US as the second big player to enter, demand for a 2X strategy on the HBM leader should be substantial.
The volatility right now
The ADR listing has caused wild swings. The stock was up 27% at one point today, then gave back much of that. More whipsaw is likely. Though the name has been public, it is still going through price discovery in the US. It will settle at some ratio that trades at a premium over the local Korean shares, but that premium hit over 50% yesterday. As US investors work out where the price should sit, expect plenty of volatility and plenty of trading opportunity.
Expected demand
Demand for SKHL is expected to be strong. Direxion has a broad, robust single-stock lineup, and SKHL fits in well. It offers access to the Korean market for the first time in this form.
The risks and the regulator question
Question: South Korean single-stock leveraged ETFs have drawn attention from regulators there because retail investors took on debt to gain exposure. Is that a concern here?
Answer: Leverage always carries risk, and Direxion leads with that warning on its website to keep traders informed. These are not buy-and-hold strategies. They are tactical tools meant to be watched closely. During product development, Direxion works with its trading team and counterparties to make sure there is capacity for the strategy to grow, that financing rates stay reasonable, and that traders get the best possible product. Direxion has traded the Korean market for years. Its triple-leveraged Korea ETF, KORU, means the trading and risk teams know this market well. The product development process is holistic, and SKHL was fitted into the broader suite before launch and before talks with counterparties.
Why buy the 2X instead of the stock
Question: Since it's 2X, why not just buy the underlying stock?
Answer: If you want to buy and hold, buy the underlying name; that makes complete sense for a traditional long-term investor. SKHL is built for tactical traders who want to profit from sharp, volatile moves, such as trading the roughly 9% drop happening now. Direxion's tools are trading tools, not buy-and-hold vehicles. If you are bullish on SK Hynix for the long run, buy the underlying stock and set it aside in another part of your portfolio. It is a strong leader in memory and fits a long-term holding. Use the leveraged fund only for short-term tactical trades.
