Archive · 2 Aug 2026

Banks Offload Leveraged ETF Risk with Crash Puts

Banks Offload Leveraged ETF Risk with Crash Puts

Leveraged ETFs are like super‑fast money makers that try to double or triple the daily gains of a single stock.

Because they can swing wildly, the banks that help run them can lose a lot of money if the stock crashes.

To protect themselves, banks sell special insurance contracts called “crash puts” that pay out when a stock falls more than 50% in one day.

These crash puts have become very popular, and banks are offering them with high interest rates, sometimes up to 20%.

In South Korea, regulators are tightening rules on these risky ETFs because they can cause big market swings.

Even with limits, a sudden big drop can still hurt the banks.

Some experts worry that the growing use of these complex insurance contracts could make the financial system less stable.

The banks say the contracts help them manage risk, while critics say the added leverage and hidden risks could be dangerous.

The whole situation shows how new financial products can create both opportunities and risks for banks and investors.

Sources