The TZA is an ETF that triple shorts small cap stocks. So, needless to say, it's a wild security. As a result, I'm playing this small, but can't resist the opportunity because if I'm right, it can easily result in a 100% - 300% profit on a call option spread.
The TZA has been oversold for a while and has spiked higher at the beginning of the year, only to fall back down fairly quickly as well. However, the choppy and slow grind lower the past two months is indicative of a waning downtrend, and so a sharp reversal is on the horizon. Waiting for a buy signal is still key, and I got one a few days ago with a close above the signal line.
Due to what the TZA consists of, and it's lack of liquidity, it's not exactly the best medium to count waves. It's probably better to analyze the Russell (@TF). But looking at the TZA on the hourly time frame, you can see a decent wave count suggesting a long wave ((v)) in place. Most likely there will be a shot lower to complete wave ((v)), but that should quickly be met by a reversal higher. I am targeting the $32 area just above the previous 4th wave. The setup and risk/reward ratio is well worth giving this wild security a shot on the long side (so short small caps):
Buy TZA Oct 14 27.5/32 Call Spread at $0.98
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PLEASE NOTE: THIS IS AN ELLIOTT WAVE BLOG EXPRESSING AN OPINION AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. TRADE AT YOUR OWN RISK.
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