Bill Ackman calls out triple-levered ETFs, zero-day options boom

Ackman wrote that such instruments, and the overuse of leverage in general — could be a danger to the health of financial markets

Bill Ackman is taking aim at two booming markets beloved by day traders: Highly-leveraged exchange-traded funds and zero-day stock contracts that have become one of the hottest options strategies on Wall Street.

In a series of posts on X, the billionaire investor and founder of Pershing Square Capital Management criticized the heavy use of leverage in markets, asking his 1.7 million followers: “How have 3X leveraged ETFs and Zero Days to Expiration (0DTE) options advanced society or contributed to our economy?”

Levered funds, which allow investors to magnify their exposure to an underlying asset or index and are typically meant for short-term trading, command around $100 billion, according to data compiled by Bloomberg. They have been a favorite among market participants hoping to profit from the recent wild gyrations in stocks: A triple-levered tech fund that trades under the ticker TQQQ, for instance, has taken in more than $2.3 billion this week through Thursday, putting it on track for the biggest weekly inflow in its 15-year history.

So-called zero-day options — which are contracts that expire within 24 hours — have also exploded in popularity, with some investors saying they can exacerbate volatility in broader equity markets.

Ackman wrote that such instruments, and the overuse of leverage in general — could be a danger to the health of financial markets. The heavy use of leverage is “driving dramatic market moves” and has made markets “increasingly unreliable as short-term indicators of the impact of policy changes.”

“I don’t understand how it is good for the world to allow investors in equities to operate with 10-1 leverage and investors in Treasurys and currencies to operate with 100-1 leverage,” Ackman wrote.

Ackman’s representatives didn’t immediately respond to a request for comment. The fund manager isn’t the first to criticize the highly volatile class of ETFs — which can magnify gains but also saddle holders with crushing losses on wrong-way bets.

Recent moves in some of the funds have bolstered the views of their critics. Two levered funds focused on the cryptocurrency Ether are among the biggest losers this year, with declines of more than 80% each. And a number of vehicles focused on the battered shares of Tesla Inc. are each down around 70%.

Others — including many of the issuers of the ETFs — argue that investors, for the most part, tend to understand the risks they’re taking when putting their money toward high-octane instruments. In other words, they are free to bet their money on things they think will help them make a quick buck.

“As a libertarian, I’d hate to see regulators try to ‘protect’ investors from themselves, by tightening the screws on these powerful tools. They’re wonderful for those who want to make big short-term bets,” Rob Arnott of Research Affiliates recently told Bloomberg. “Not so great for the buy-and-hold investor. And not bad for the short-and-hold investor.”