Options trading in small-cap ETFs suggests some money managers are buying insurance against market pullbacks as U.S. stocks hit their highest levels since the summer sell-off.
On Friday, we observed a continuation of ProShares UltraShort S&P 500 (NYSEArca: SDS) call buying, which has been a familiar “short” trade going into the recent run-up in equities.
Late last week we also saw call buyers in a related exchange traded fund, Direxion Daily Small Cap Bear 3X (NYSEArca: TZA).
Coupled with this call buying, we point out that TZA took in an impressive amount of assets last week via creation activity, to the tune of about 13% of its outstanding assets in the fund (> $100 million) as it seems that managers are using these bearish leveraged funds to get short exposure to equities at this juncture.
TZA tracks the Russell 2000 index on a 3 times daily leveraged, “inverse” manner, meaning that traders looking to aggressively speculate on the “bear” side of this index may use the fund to deliver such returns.