GraniteShares has decided to liquidate its 2x Long LCID Daily ETF after a staggering loss of around 92% in value. Initially launched with the intent to provide traders with double the daily performance of Lucid Group stock, the ETF ultimately produced severe losses instead.
As observed on July 14, the net asset value of the ETF plummeted to a negative $0.0156, while shares traded at $0.2876, indicating a significant disconnection from actual value.
#What Went Wrong with the Leveraged Bet?
The GraniteShares 2x Long LCID Daily ETF debuted on April 22, 2025, promoting itself as a straightforward investment aimed at achieving twice the daily returns of shares associated with Lucid Group listed on NASDAQ. However, leveraged ETFs, which re-set their metrics daily, can struggle over more extended holding periods. The concept of volatility decay begins to erode positions when market movements are prolonged beyond one day, presenting staggering losses when averaging price fluctuations over time.
To illustrate, if Lucid's stock drops 10% one day and bounces back by 10% the next, a 2x leveraged ETF does not return to breakeven. Instead, it incurs a loss. This dynamic, when repeated over many volatile days, resulted in losses exceeding 91% this year alone. The fund also had an expense ratio of 1.15%, although actual costs could escalate up to 4.67%.
#What Is the Broader Implication of This Liquidation?
LCDL is not the only casualty in this trend. GraniteShares had previously announced liquidations for other leveraged ETFs, including BULX, ETRL, and MSDD, with their final trading dates around June 18. The termination of the LCDL is indicative of a more significant issue in which single-stock leveraged products are frequently discontinued once their underlying mathematics become untenable.
#What Should Investors Consider Moving Forward?
The collapse of LCDL serves as a critical lesson regarding the nature of leveraged ETFs. Financial advisors regularly warn against considering these instruments as suitable for long-term investment strategies. Such products explicitly indicate in their prospectuses that they focus on daily returns, and extended holding periods can lead to results that diverge severely from the anticipated performance based on the underlying assets.
The unfortunate situation regarding LCDL highlights the importance of understanding the distinction between market price and net asset value, as a fund trading at a price of $0.2876 along with a negative NAV of $0.0156 signifies that investors were essentially purchasing a product disconnected from its true worth. Hence, diligent analysis and caution are essential for making informed investment decisions.