By Chris Dieterich

Reuters

Exchange-traded funds that own shares of metals miners have been on a historically rocky ride in recent days, with huge rallies specked with big drops.

Wild swings in recent days have handed the Market Vectors Gold Miners ETF (GDX ) its highest short-term historical volatility reading in at least two years, according to options data provider LiveVol. In plain English: the miner ETF hasnt suffered trading this jarring in a long, long time.

GDX has bounced around in fitful burstsup 3.7%, up 8.3%, down 6.4%, up 4.4%since plunging last week to near an all-time low. Barrons wrote at the time that extreme selling was prompting some technicians to call the bottom. On Tuesday, GDX was the most heavily ETF on the market, surpassing even the mighty SPDR S&P 500 (SPY ) in the number of shares traded.

Looking ahead, the options market shows that traders see little chance that volatility will subside soon. So-called implied volatility of the Market Vectors Junior Gold Miners ETF (GDXJ ) is sitting near its two-year high, data from LiveVol show. Implied volatility is a measure of how much investors will pay to use options as insurance against additional declines.

Historical volatility of the Market Vectors Gold Miner ETF over 10 days.

Another potentially counterintuitive signal: money coming out of GDX is recent days might be bullish. Thats because during times of stress, certain ETF dealers can create additional shares to satisfy demand for short sellers, who need shares to borrow and sell. This effect can lead to inflows in times of heavy selling and outflows during rebound rallies. Indeed, some $140 million has come out of GDX over the past week, according to ETF.com; in the two previous weeks, when miners were in free fall,  GDX took in some $20 million.

In the words of Dave Lutz. head of exchange-traded fund trading at JonesTrading Institutional Services, this morning:Telling me peeps saying, get me outta my short. 

This blogger wrote about the phenomenon for WSJs MoneyBeat blog last year:

One of the quirks of the ETF market allows market makers to create shares for the sole purpose of lending them to short sellers.

Short-sellers borrow shares and sell them at a high price, hoping to buy them back at a lower price in the future and reap a profit. Unlike stocks, which have a set number of outstanding shares, ETFs undergo a constant process of spawning more shares and taking others off the table.

A.M. Funds Roundup: Hedge funds eye Covidien; Prepare for a Wave of China ETFs Next