Investment banks are offloading their leveraged single-stock ETF exposure by selling exotic derivatives called crash puts to hedge funds and institutional investors. These instruments pay out if a stock experiences a catastrophic one-day drop, typically exceeding 50%. Goldman Sachs reported immense demand for these hedges as early as May, with potential yields ranging from 14.2% to 20%. On July 14, Lucid Group shares plummeted 57% in a single day, triggering the closure of a related leveraged ETF. South Korea has been at the epicenter of this trend, with retail investors piling into leveraged products before regulators imposed stricter limitations.
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