Small cap bears won’t throw in the towel just yet

The iShares Russell 2000 ETF (Ticker: IWM) is higher by 2.0% to start the week rebounding from a three-month low. Since March 3 the small cap index shed 9.97% as investors doubted the economic rebound. Testimony to this was the latest weekly loss in spite of the above expectation April nonfarm payroll report. Direxion’s Daily Small Cap Bear 3x ETF (Ticker: TZA) surged by 32% from the earlier March peak through Friday to $18.01. And so as small cap names are hoisted by a more positive tone including further record intraday highs for the Dow industrials and an advancing S&P 500 index, the Direxion inverse play is sliding by 6.3% to $16.86.

However, the put/call ratio of 0.49 indicates that investors are making more bullish plays using call options, signaling that they expect the fund to resume its climb portending further loss for the Russell index. Call options at the 18.0 strike are in demand at the May 23 weekly expiration where some 3,000 lots have traded exceeding prevailing open interest. June 20 calls at the same strike have also seen volume above 1,000 contracts where the premium is lower by 43% to 78-cents. It seems that in spite of the Monday rally, some bearish option traders are reluctant to throw in the towel just yet.  

 
 

Direction triple bear play stumbles as some indices hit record highs.

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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