What Is JDST And Why Is It So Volatile?

One of the biggest movers in the market recently has been the Direxion Shares Exchange Traded Fund Trust JDST. After a 15 percent drop last Friday to close out the week, the JDST plummeted another 13 percent on Monday. Year-to-date, the JDST ETF is now down 51.5 percent.

While casual traders may know that the JDST is a gold-related ETF, it's certainly not the standard commodity ETF. According to the Direxion website, the JDST has a very specific target:

“The Direxion Daily Junior Gold Miners Index Bull and Bear 3x Shares seek daily investment results, before fees and expenses, of 300% or 300% of the inverse (or opposite) of the performance of the MVIS Global Junior Gold Miners Index.”

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In other words, for every percent junior gold mining stocks gain, the JDST is designed to lose 3 percent. Top weightings in the MVIS Global Junior Gold Miners Index include stocks such as Alamos Gold Inc (US) AGI, Silver Sandard Resources Inc. (USA) SSRI and Pretium Resources Inc PVG. JDST’s 50 percent 2017 decline starts to make sense in light of the fact that all three of these stocks are up between 5.4 and 18.5 percent in 2017.

The JDST is a popular trading tool among gold traders who want to day trade gold prices, but it’s not meant to be a longer-term holding. The fund is constantly adjusting its positions on a daily basis, meaning it suffers from time-value decay known as contango. Since the beginning of 2014, the JDST ETF is down 99.8 percent overall.

The volatility in the JDST will probably pick up when the Federal Reserve makes its decision regarding a possible interest rate hike.