Traders Target Small Caps for Market Pullback (TZA)

Posted in Options 
December 29th, 2009

Small Cap Bear 3X (NYSE: TZA) trading 27,000 January $9 calls, mostly buyers looking for market pullback as the volume is well above the open interest of 4,171.  45% of the trades have traded at the offer, 17% at the bid, and the remainder at the mark, with the larger blocks on the offer.  Small Caps have had a great 2009 and may be the first to be dumped in 2010 as Portfolio Managers look to move to quality and safety with strong earnings power and high dividend yielding companies.  Also, as my market outlook stated this morning, the 1,135 level in the S&P looks to be a near term top, and we could pull back to 1,075, which would send the TZA well above $11, doubling the value of these calls.  Much of the volume may be portfolio hedges going into 2010, but it still shows caution, and targeting a 3X small cap bear fund makes sense, as it is the group likely to be sold off the hardest on a market pullback.  The call volume is already 3X average daily call volume.


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