Today in Ultra Land

Reverse split and then drift back to zero for the inverse ETFs. This just in from the Daily Options Report:

If this won’t make Cramer spit out that coffee, not sure what will (hat tip Kieran in the comments)

Direxion, a pioneer in providing alternative investment strategies to sophisticated investors, announced today that it will execute a 1-for-2 reverse split of the shares of Direxion Daily Mid Cap Bear 3x Shares after the closing of the markets on Wednesday, June 24, 2009. MWN shares will begin trading on NYSE Arca, Inc. (NYSE Arca) on a split-adjusted basis on Thursday, June 25, 2009.

No one’s exactly sure why they picked MWN to reverse-split first. It’s a $33 stock, and it’s way off the radar. But the implication is that more popular names like our friends FAS and FAZ will reverse split as well.

Clearly though 2:1 won’t do the trick for them, perhaps 10:1 would make more sense. Or better still, issue new one’s from scratch. There was also some thought about creating new one’s with longer reset periods, like say one month as opposed to 1 session. But alas, that becomes problematic too as we saw a month with a greater than 33.3% gain in financials as recently as March. In fact last time we ran numbers, we saw that if Direxion had issued monthly FAS and FAZ when they issued the originals, FAS would be lower than it is now and FAZ would have gone under zero.

And in other news, Finra has officially requested that Ultra ETF’s now only sell with a warning label.

The Financial Industry Regulatory Authority has reminded brokers and registered investment advisers about their fiduciary duties when selling ETFs that offer leverage, are designed to perform inversely to the index or benchmark they track, or both. In a notice posted to its Web site earlier this month, Finra reminded the brokers and advisers that these instruments are complex and typically unsuitable for retail investors who plan to hold them longer than one trading session.

“While such products may be useful in some sophisticated trading strategies, they are highly complex financial instruments that are typically designed to achieve their stated objectives on a daily basis,” the notice said. “Due to effects of compounding, their performance over longer periods of time can differ significantly from their stated daily objective.”

It goes on to note that if your Ultra ETF is still up 4 hours after you buy it, consult a physician. Do not operate heavy machinery if you buy and hold these.

And no, I have no idea what is in that picture, although it looks like something out of Sleeper.