The Defiance Daily Target 2X Long MSTR ETF (MSTX) rose 5.1% in pre-market trading on Tuesday, tracking the performance of MicroStrategy (MSTR), a software company that has invested heavily in Bitcoin and currently holds over $20 billion worth of the cryptocurrency.
However, MSTX and its peer T-Rex 2X Long MSTR Daily Target ETF (MSTU) have recently faced challenges in accurately tracking their intended 2x daily returns of MSTR. Both funds have exhibited noticeable tracking errors, with returns deviating significantly from the expected levels on certain trading days.
Experts cite several potential reasons for this phenomenon. Firstly, the massive size of MSTX and MSTU relative to MSTR's market capitalization makes it difficult for the ETF issuers to properly hedge their exposure using total return swaps and options. Additionally, MSTR's high volatility renders options less effective as a hedging tool, contributing to the tracking discrepancies.
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