Visual Guide to ETFs

Summary

How ETF short interest relates back to the basket is a difficult subject that can confuse even the most astute market veterans. It’s important to distill the ETF back to the underlying basket. When that basket is cheap and liquid, then that should translate into cheap and liquid stock loan availability in the ETF. There are a wide variety of users of the ETF product set, and when it gets expensive to borrow an underlying basket, the costs for some participants will go higher than they are willing to pay. This will start a process of unwinding short positions. Thanks to the open-ended issuance function, the added availability of newly created shares and the redemption of excess shares act as a release valve on any pressure that may build ...