As AI semiconductor stocks frequently swing more than 10% in a single day and South Korea's KOSPI index triggers circuit breakers eight times in a month, a once-marginalized trading strategy is experiencing explosive growth on Wall Street: intraday momentum trading. Amid the rapid expansion of leveraged ETFs, these daily mechanical rebalancing products have become a major driver of market volatility, creating unprecedented profit opportunities for quantitative strategies skilled at capturing short-term trends. From JPMorgan to Societe Generale, top Wall Street institutions are systematically capturing this "structural dividend." Meanwhile, the South Korean regulator's emergency brake and retail investors' painful losses exceeding 2 trillion won reveal the other side of this feast.
The core mechanism of leveraged ETFs dictates their inherent pro-cyclical nature. To maintain a set leverage multiple, these funds must buy more when the market rises and are forced to sell when it falls. This daily "reset" before the market close makes tech stocks vulnerable to amplified buying or selling pressure in the final minutes, pushing intraday trends toward "momentum acceleration" rather than natural supply-demand balance. Calculations by JPMorgan's strategy team reveal the staggering scale of this mechanism: from early June to July 29, daily rebalancing of US leveraged ETFs resulted in a net sell-off of approximately $150 billion in stock exposure, with total assets falling about $70 billion from their June peak. This passive selling coincided with the sharp tech correction, creating a "death spiral" of decline, forced leveraged ETF liquidation, and accelerated decline. Analysts point out that leveraged ETFs naturally have a "short gamma" property—they must buy as prices rise and sell as prices fall. This pro-cyclical trading behavior amplifies price movements in the market's direction. For every 1% daily move, about $9 billion in mechanical trading is triggered. The impact is even more severe in South Korea. A leveraged ETF tracking SK Hynix has fallen over 80% from its June high, while products tracking Samsung Electronics have dropped over 70%. The mechanical stampede of leveraged ETFs creates a vicious cycle of decline and liquidation. In the past month of sharp losses, South Korean retail investors recorded total actual losses of approximately 2.15 trillion won from leveraged trades, including leveraged ETF net asset value declines, option margin losses, and debts owed to brokerages. The leveraged ETF tracking SK Hynix fell 33.8%, while the underlying stock only fell 6.8%—leverage amplifies not only gains but also the speed of destruction.
However, intraday momentum strategies perform differently across individual stocks. The gamma structure of the options market plays a key differentiating role. For Nvidia, sustained call option selling activity since 2023 has created a positive gamma buffer, effectively offsetting the short gamma effect from leveraged ETFs. As of July 27, Nvidia's options net gamma exposure was approximately -$82.88 million, at a relatively manageable level. The situation is entirely different for Micron Technology. Over the past month, Micron has seen put option buying supported by call option selling, resulting in a negative net gamma position for dealers. On July 25, Micron fell below the gamma flip point, entering negative gamma territory. This negative gamma structure means market makers will hedge in the direction of the trend rather than against it, further amplifying price swings. This explains why momentum strategy results can vary significantly even within the same industry. Jitesh Kumar, derivatives strategist at Societe Generale, stated, "After weeks of de-risking, positioning is now cleaner, and investors are returning to this theme through leverage products. These products are themselves part of the mechanism—their end-of-day rebalancing moves in the direction of the day's trend, sustaining rather than undermining the intraday momentum that the strategy captures."
The mechanical rebalancing of leveraged ETFs has created a predictable trading environment for Wall Street's quantitative traders. A team of JPMorgan strategists published a paper studying a trading strategy based on five-minute price intervals: a basic intraday momentum strategy follows strict rules—buy when the price is 1% above the previous day's close, sell when it falls below the prior day's close, and close positions at the end of the trading day. Florian Ielpo, macro head at Lombard Odier Investment Managers, noted, "Intraday momentum trading profits in big moves, whether up or down; in calm days, it usually loses money. July's tech volatility and poor performance were precisely the time for this trading style to show its value." Data from Premialab outlines the strategy's impressive returns. Pierre Trecourt, co-founder of Premialab, said the semiconductor sector has become the hottest area for intraday momentum strategies, with the number of effective strategies in that sector more than tripling since 2024. Across the entire US technology sector, such strategies have grown by about 80% since the end of 2021. JPMorgan strategist Yangyang Hou pointed out that this strategy performs best with highly volatile stocks and trading days, stating that the current high market volatility is reminiscent of the 1998/99 tech revolution, which created unprecedented earnings uncertainty and record-high individual stock volatility.
South Korea is the epicenter of this leveraged ETF storm. On May 27, to boost its domestic capital market's appeal and guide capital back, South Korea officially launched single-stock 2x leveraged ETFs tracking Samsung Electronics and SK Hynix. The products quickly attracted retail capital, with South Korean investors' net buying reaching 14 trillion won (approximately $9.7 billion) after launch, according to data from KB Financial Group. However, once the market turned, the destructive power of leverage was fully unleashed. After the KOSPI hit a phase high on June 19, the semiconductor sector began to correct. By July 30, the KOSPI had fallen 38.63% from its June 22 high, with a market cap loss of 2,877.78 trillion won, exceeding South Korea's annual GDP. The South Korean stock market triggered an 8% Level 1 circuit breaker for two consecutive trading days on July 28 and 29 for the first time in history. South Korean regulators were forced to apply an emergency brake: from July 31, the minimum margin requirement was raised from 10 million won to 30 million won in cash, and advertising for leveraged products was restricted. Daily trading volume for the 16 affected ETF products crashed from 10-12 trillion won (peaking at 15-20 trillion won) to around 1 trillion won in early August, a decline of about 90%. Trading volume for the leveraged ETF tracking SK Hynix fell to its lowest level since June 4. The turmoil has escalated from market volatility to political accountability. South Korea's presidential office has responded to calls for accountability regarding the launch of single-stock leveraged ETFs. Lee Nam-woo, chairman of the Korea Corporate Governance Forum, warned of the cyclical risks in the memory chip industry. However, South Korean retail investors have not reduced their risk appetite; they net purchased $4.67 billion of US stocks in July, hitting a new high for the year, with the US semiconductor triple-leveraged ETF SOXL seeing nearly $2.5 billion in net buying for the month.
Although the asset size of some leveraged ETFs fell from historic highs in July, temporarily easing some of the sharp volatility from rebalancing, market interest in intraday trend trading has not waned. Jitesh Kumar, derivatives strategist at Societe Generale, noted, "After weeks of de-risking, positioning is cleaner, and investors are returning to this theme through leverage tools. These products are part of the mechanism: their end-of-day rebalancing moves in the direction of the day's trend, sustaining rather than undermining the intraday momentum the strategy captures." Goldman Sachs has previously pointed out that the recently launched "single-stock leveraged ETFs" are a core driver amplifying intraday volatility. The 2x leveraged ETF for SK Hynix grew to $130 billion in assets in nine months, evolving from a single trading tool into a major force influencing volatility in South Korean and even global tech stocks. Analysts warn that the boom in leveraged ETFs is a double-edged sword. While it provides investors with a tool to profit from sharp tech stock volatility, its inherent structural flaws and pro-cyclical mechanisms are increasing market fragility. Once market sentiment turns, such passive, mechanical trading behavior can easily trigger a chain reaction, amplifying downside pressure. Frank Benzimra, head of Asian equity strategy at Societe Generale Hong Kong, stated on July 29, "The stock market is undoubtedly in a process of extreme overcrowding, and now it is in the process of unwinding." The rise of leveraged ETFs has not created new market volatility; it has simply released latent structural volatility in a more violent and mechanical way. For traders who can harness this force, it is an unprecedented opportunity; for long-term investors and retail investors passively bearing the impact, it is an ongoing lesson in risk.
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