Direxion Daily TSLA Bull 2X Shares (TSLL), a leveraged ETF designed to deliver twice the daily performance of Tesla stock, plummeted 5.58% on Wednesday, April 9, 2025. This sharp decline came as a surprise to many investors, given that Tesla's stock actually surged by 12-23% on the same day.
The contrasting movements between TSLL and Tesla stock can be attributed to the nature of leveraged ETFs and the timing of market events. Tesla's stock rally was primarily driven by President Donald Trump's announcement of a 90-day delay in implementing new tariffs, which alleviated immediate concerns about the impact on Tesla's business. Additionally, Benchmark analyst Mickey Legg added Tesla to the firm's "Best Ideas" list, further boosting investor confidence.
However, TSLL's performance is based on Tesla's daily movements, and the ETF likely reflected Tesla's struggles earlier in the week. On Monday, Tesla reported disappointing first-quarter 2025 delivery numbers, with vehicle sales falling to an almost three-year low. This news initially caused Tesla's stock to drop, which would have been amplified in TSLL's price.
The disconnect between TSLL's decline and Tesla's surge on Wednesday highlights the risks associated with leveraged ETFs, particularly when held over longer periods. These instruments are designed for short-term trading and can diverge significantly from the performance of their underlying assets due to daily rebalancing and compounding effects.
Investors in TSLL and similar leveraged products are advised to closely monitor their positions and understand the potential for unexpected outcomes, especially during periods of high market volatility or when significant news events impact the underlying stock.