InterETF Plays Revisited

I have delved into a few InterETF plays, which I have not written about in some time. Given the run the market has had and all the worries about a major pullback, I've tweaked the approach to create a bit more conservative pairing. In this case, I am long 20x of the Direxion Daily Small Cap Bull 3x Shares (TNA) October $44 and $45 puts, for a total of 40, while selling 70 iShares Russell 2000 (IWM) October $76 puts. This gave me a net credit of $150. Mixed with this, I sold another 100 October $77 puts on IWM to finance the purchase of 130 October $19 calls of the Direxion Daily Small Cap Bear 3x Shares (TZA) for a net credit of $270. Overall, this net credit of $420 will require about $11,500 in portfolio margin. This trade is different from my approach in the past, though.

The difference is the ratio of the options is based on the strikes rather than the current prices. I've adjusted this after reviewing the trade data amassed over the last few years. By now most know of the decay that occurs in leveraged exchange-traded funds; therefore, the second part of this trade may seem counterintuitive, and it would be if I were using strikes set to expire maybe three to six months from now. That is not the case. While volatility decay could occur, the shortened time frame until October and the choice of the strikes is what I find most important....381 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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