The set-up: I bought Direxion Daily Small Cap Bear 3X ETF (TZA) on Monday at $16.28, thinking there is about $1 per share upside on it, and watching the last relief rally on the Russell 2000 run out of steam. TZA is my go-to-trade when I think the Russell [and, thus, the iShares Russell 2000 ETF (IWM)] is headed down.
Note: There were many different plays on the IWM at RagingBull yesterday. I held a number of options positions and was net short on it, as was Jason Bond of JasonBondTraining.com. Davis Martin of DailyProfitMachine.com was holding TZA and watching IWM puts (which he ultimately did not trade).
How it played out yesterday: The IWM kept hitting resistance in the $141 range; it has consistently paid off if you short in that range and cover a few dollars lower.
An options trader like Jason might have taken the easy money (in fact, he did). Learn about Jason’s $10,000 profit Tuesday on the IWM. With my main investment here being in the ETF, I had to decide whether to take a lesser profit or stand tall, and nothing happened yesterday to make me cut and run.
How I will play this out: I expect IWM to go up a bit at the market open, and I will ride out the bumps until I get the price I want. I am still looking for about a 5 percent gain overall on this trade.
Thus, if TZA goes down with the early morning rise I expect, I will add to that position down to $15.90. My stop remains at $15.75; I’m still expecting the ETF to get close to resistance at $17.20 and will get out just under that, about $1 from my purchase point.
Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, primarily using leveraged ETFs. At the time this was published on RagingBull.com, he held shares of TZA that he had purchased on Monday, June 26 and was planning to trade them as described in the article. He also holds various options positions and is net short IWM.