Nickel Surge | Causing Pain for Short Investors

Nickel has had a historic surge this week, and investors shorting the strategic metal have felt the pain.  WisdomTree Investment announced that the Nickel 3X Daily Short exchange-traded commodity (3NIS), created to deliver three times the inverse performance of nickel, will be redeemed following the dramatic rise in the metal’s price.

The price of Nickel has increased in light of supply concerns from the Russia/Ukraine conflict and a squeeze on short positions.  Russia is one of the largest producers of nickel in the world – if the metal is added to the growing list of sanctions, it could drastically affect supply to Western manufacturers.

The London Metal Exchange (LME) halted nickel trading today after prices doubled to a record $100,000 per tonne.  The LME said that it was considering a closure of several days, because some position holders have been struggling to pay margin calls as they race to cover short positions.  The Nickel market is also very bullish, due to low inventories; which have been down 50% on the LME since October last year.

Last week, 3NIS had more than $7 million in assets.  On Monday, WisdomTree announced a Restrike Event on the Nickel 3X Daily Short.  A restrike is a mechanism used to reset the strike price of a leveraged product (e.g., ETP), before the value is forced down to zero.

Using a leveraged product like an ETP may magnify returns, but this can occur on the upside and the downside.  In times of high volatility and/or high stress, the returns of the underlying market are greater and could result in a move that wipes out the value of a short/leveraged market.