Put volumes notably swelled yesterday in ETF options in a sudden market downdraft, as did overall volumes in the marketplace in general.

SPDR Financials (NYSEArca: XLF) put buyers appeared in size, with nearly 300,000 contracts traded as investors appear cautious about the near term uptrend in this sector ETF heading into earnings season.

XLF sunk 0.62% yesterday but is still a relative strength standout compared to the general market as well as other sectors YTD.

Similarly, hedgers were active in both SPDR S&P 500 (NYSEArca: SPY) and iShares Russell 2000 (NYSEArca: IWM) throughout the session as well, bracing for additional potential weakness in equities as this 4Q has not necessarily panned out well thus far for bulls.

In additional bearish looking flows, call buyers were around in Direxion Daily Small Cap Bear 3X (NYSEArca: TZA), which is equivalent to “getting short,” albeit with 300% daily leverage, so this is a rather aggressive short trade.

TZA trading volume in the underlying has been reasonably heavy lately, and the ETF continues to rally today to multi week highs.

Holding about $990 million in assets under management currently, TZA is typically used as a portfolio hedge when technical managers believe we are in short term pullbacks, and it is also used by aggressive speculators whom want to use leverage in their portfolios to position for “bear” moves in Small Caps.

The pullback in both Small Caps and Large Caps in the past few sessions has undoubtedly caught many institutional managers by surprise, most of whom were firmly positioned in “bull mode” as the major indices did briefly challenge 52 week highs just four sessions ago, as well as in early September on post “QE3” action and initiatives.

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