Traders Bet on More Downside for Direxion Daily Small Cap Bear 3X Shares

The Direxion Daily Small Cap Bear 3X Shares (TZA) exchange-traded fund (ETF) seeks to replicate, net of expenses, 300% of the inverse daily performance of the Russell 2000 Index (RUT). In other words, TZA is an ultra-bearish bet against RUT, the popular small-cap index.

Amid a rebound in the broader equities market, TZA has fallen on tough times lately. While RUT has added 64% from its March nadir, TZA has plummeted 86% from its March peak. (As you can tell, the targeted 300% inverse return starts to warp over longer time frames.)

Traders have taken notice of this trend, and they're apparently betting on more of the same from TZA. During the course of Tuesday's session, option players on the International Securities Exchange (ISE) bought to open 2,037 puts on the ultra-short ETF, compared to just 327 calls.

The most popular strike yesterday was TZA's September 10 put, where 2,024 contracts traded on open interest of 50. Needless to say, the bulk of the day's volume consisted of newly opened positions. Open interest at this strike stands at 2,064 contracts today, and implied volatility on the option jumped by 12.6% as a result of the surge in demand.

Currently, those September 10 puts are out of the money by just under five points. TZA's intermediate-term slump continues, though -- since July 14, the shares have been guided consistently lower by resistance at their 10-day moving average.

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