The above trade setup is one I do each year for this pair (I do this with FAS / FAZ as well). You can stick to the basic setup above, or mix in a variety of additional trading events (re-balance in June for example). The premise here is that you will achieve some return based on the decay of the ETF due to its structure.
As for the performance of this trade, you can see above that in 2010 you would have experienced a loss on the short of TNA for that year – but the net return on the short pair is still significant. The net return in 2011 for the pair looks to be really solid with just 4 trading days left. These returns do not account for margin use (if applicable based on your actual trade implementation). I use solely option trades for this, and utilize Weekly options along the way to enhance the trades.
- TNA is the Direxion Small Cap Bull 3x
- TZA is the Direxion Small Cap Bear 3x