Thoughts on $TZA and $TNA

I’m working into the night on my trading strategy, so am going to post again despite having already posted just this afternoon.  I don’t know if these posts help anyone else, but they help me clarify my own thoughts.

I’ve been trading TNA and TZA.  Both are flip sides of the same coin  The former is triple-leverage Bullish on the Russell 2000, the latter the same on the short side.  As options tend to be, they basically are a zero-sum game, when one goes up the other goes correspondingly down, though some correctly will quibble with that and note that they do not completely cancel each other out.  For the most part, though, they are Yin and Yang.  If you are playing the Russell up, you long TNA or short TZA, and vice versa.  Anyway,  I’ve noticed a few things which might be of interest.

These are not for the faint of heart.  They definitely are NOT for newbies, and nobody should play them on margin.  You will blow your account.  Some folks think these are the crack cocaine of ETF’s and should be banned.  Whatever.  They move fast and are unforgiving.  They are said to be good only for daytrading, but doing that can be extremely dangerous.  They move so fast that if you get the direction wrong, you are hosed.  If they don’t come back, you are out.  Either you’re right, or you lose.  No other likely outcome.

I find that, despite all the admonitions and warnings, they still can be worthwhile.  One way is just to time them right.  Figure out the right timing and direction, and you are golden.  Unfortunately, I have found in my trading career that it almost impossible to get timing and direction right at the same time.  Well, it is possible, and we all do it at times, but to do it over and over again with few errors, that’s impossible.  Yes, impossible.  I don’t care who you are.  It’s impossible.  IMPOSSIBLE.

OK, so now that you know where I stand, why do I trade them?  In part, it’s been a learning experience.  I wanted to see what they can do.  I think I’ve succeeded at that modest goal.  If you learn how to handle nitroglycerine, then working with dynamite becomes a little less stressful.  I refuse to be intimidated by any securities.  I am now comfortable with them.

But, of course, the objective always is to make a profit.  I have found – and maybe this is just me – that trying to daytrade them is very difficult.  They are just too unforgiving.  They will say “Adios” to your entry point in the wrong direction in a heartbeat.

But swinging is another matter.  Yes, they lose their value over time and you can’t hold them for years at a time.  But I don’t think any of us WANT to hold these trading vehicles that long.  If you want to buy and hold, I can give you a whole list of great, great stocks (GE, ED, INTC, etc.).  But so can anyone else.

My point in writing this is to give you a different perspective, perhaps, on these two particular trading vehicles.  And that is what they are, trading vehicles.  They are not for widows and orphans, as the saying goes.  You buy them in order to sell them, not to harvest dividends and wait for splits.

But saying they are trading vehicles does not mean a good holding time is necessarily measured in minutes.  When you trade like that, you may get the odds in your favor through various technical measures, but really you are just gambling.  You are simply gambling at one of the easier tables in the casino.  That’s really the essence of daytrading.  There are very, very good gamblers, and very, very good daytraders.  If that is you, you have my admiration and respect.  But my experience is that very, very few people are good gamblers, and very, very few people are good, consistent daytraders.

You should only use these particular vehicles, in my humble opinion, to play a trend.  Doing anything else reduces your odds of success to well below 50%.  You can play the bounces in a counter-trend, but you better be nimble and lucky at catching the real bottoms, not the bear flags.  Otherwise you are hosed.  Plain and simple.

It is much wiser to play in the direction of the trend.  Then, even when you misjudge a bottom, long- or short-term,  you stand an excellent chance of the instrument recovering.  Try that with a counter-trend play and you may be waiting a long time.

If you are going to play a trend, you can daytrade, for sure.  But if you are confident you have the trend nailed, I would not to do that.  You actually reduce your risk by just letting the position ride until it is time to sell.  If unsure about when to sell, wait for the market to tell you.  With these particular securities, that can be a dramatic, even traumatic experience.  I don’t think that anyone who was holding and watching either of these things in the last hour of trading on October 4, 2011 will ever forget that experience.

If you were holding TNA then (perhaps in anticipation of a trend change due to oversold conditions), the generic advice that these things are only worth daytrading would have been completely wrong.  It would have cost you gains.

TNA October 2011

The highest-reward strategy, in hindsight?  Well, if you thought the trend had changed, that is easy.  Hold the darn thing!  You would have almost a double after three weeks.  Try doing that with AAPL or some bond.

Hindsight is always perfect.  But my point is, if you make the decision to ride the trend and, of course, catch the right trend, this strategy works.  When I say the “right” trend, well, let’s look at TZA during the same period:

TZA October 2011

Well, the optimal strategy for this would have been to sell it at some point during the previous uptrend.  Over a third of the losses on this happened in 45 minutes on October 4th, just as the same amount of gains accrued during that time to TNA.  But once this turned, it didn’t really look back.  These instruments are volatile, but they respect the trend.  So either ride it, or completely avoid it.  Don’t try to fight it.

There are a few other things worth noting.  You don’t want to hold these until the trend ends.  You can see the results of that with TZA.  Blink, and you lose a huge chunk of your gains.  Get out while the getting is good.  With these more than anything, getting greedy will hurt you.   Conversely, if you do think a trend change is imminent, it is prudent to pick some up BEFORE the trend changes.  Yes, you will have to hold it at a loss for some period of time.  But look at the potential gains of doing so!

There are some, shall I say, advanced strategies you can play with these.  Trader 3xshort in StockTwits suggested shorting the opposite instrument for the direction you want, rather than going long.  So, if you think the market is up, you don’t long TNA but instead short TZA, and if down, short TNA.  I’m not sure I understand the math involved, but that’s something to consider.

You also could consider simply shorting them and waiting for them to go to zero.  That will take some patience, but I’m told there are gains to be had by doing so.  Maybe someone else can work that out in greater detail.

Finally, some claim to hold both at once, and adjust their positions based on market conditions.  So, if the market rises, you would take some profits in TNA and keep your TZA, and so forth.  That strategy requires a lot of patience, but I can see how it could make you money, though it also would tie up a lot of funds.

Let’s turn from the abstract to the practical as of today.  A lot of people think the market is getting over-valued.  Others, of course, think we are going straight to 1400 on the S&P 500.  That’s what makes markets.  I can see valid points on both sides.  But traders have to make decisions, otherwise they don’t get paid.  I’m leaning heavily into the first camp.  I think a market turn is coming, and soon.  Surveys show the herd turning from Bearish to Bullish, the Europe news is out and no longer driving things, and an awful lot of weak hands are holding an awful lot of profits.  And I’m won’t waste your time going through all the technical indicators showing an overbought condition, you’re all aware of what a four-week rally without a pause does to the charts.

One curious and almost completely coincidental point leaps out at me.  TNA bottomed on October 4th at 26.67.  TZA just bottomed yesterday at 27.20 (see charts above).  May not mean a thing.  TZA may go to 10, who knows.  But quite an interesting coincidence, in such similar circumstances.  Yin and Yang….

As I said, you could see a lot of gains at the turn, but trying to time the trend change is next to impossible.  For that reason, I made the decision to pick up some TZA today and wait it out.  Yes, it is a wasting asset, but if the trend does change to the downside as has happened with some regularity recently, the gains could be tasty.  It may be a day, it may be a week, it may be longer, but eventually this market is going to turn.

And I’m going to be there waiting.

10 Responses to “Thoughts on $TZA and $TNA”

  1. Hey Slayer good ideas on XXX s.. I ususally use very small portions so I can average down until it rips. But never more than my total alloted amount for the trade.. Thanks

  2. I actually tried this strategy years ago. I did well until one day like yesterday when the market just took off in one direction and I was already in the hole. Within days I was 10K in the hole. Furthermore I was recycling dollars and making Etrade rich. Hard to beat the HFT machines in this game that way. I can only say good luck.

  3. Everyone points out that sentiment is too bullish now for the market to continue to rise. Everyone also seems to expect at least a short-term pullback. Those two reasons alone are why we will continue to go up.

    1450.

  4. I’m with Vegastrader.
    I took a real hit being on the wrong-side during this Twighlight Zone rally. However, I may try the Ying-Yang strategy (brokers love that) as I’ll need the leverage to get this disaster kick-started again.
    The problem with holding single inverse leverage (wrong side of market) is that your Uncle Point usually coincides with the exact moment the markets move in your favour. And that one smarts. A dead clock has the right timing twice a day — inverse leverage better be right and better be quick.
    Good luck. And good thoughts there.

  5. Back in 09-10 FAZ dropped to below $3, if I recall, and has reverse split quite a few times. Wasn’t it 60 Minutes who did a show on daytraders and one of the best, out in San Diego, made tops 100K? The leveraged ETFs are generally murderholes and serious risk management and hard stops must be adhered. Or, buy small if you really want to play. The market is all about capital preservation, I have learned that from some really great traders, and very seldom, VERY SELDOM, do they trade these leveraged products.

    • I am not sure if 60 minutes said that, but that is ludicrous. I was a professional daytrader for four years, and netted a great deal more than that in two of those years. The best traders I worked with made over 7 figures in 2008 and 2009.

  6. These 3x ETF’s bury many many more people than they make, thus I avoid them at all costs now, but YMMV.

    As an alternative, why not just buy in-the-money calls or puts on IWM? Your max risk is clearly defined, you can gain more leverage with a smaller amount of capital and you can actually do technical analysis on Russell index or IWM charts. By buying ITM, your premiums will be higher, but you at least have some intrinsic value (unlike OTM lotto tickets).

    Additionally, trying to glean technical information from 3x charts (especially 3x inverses) is a dicey proposition…at best.

    I know the allure of jumping on these 3x’s for 5+% daily gains is enticing…but the reality is you are eventually going to be on the receiving end of more 5+% daily losses than gains. As flyaway said, it’s about capital preservation…IMO, these instruments are the antithesis of how to best preserve capital.

  7. Should you Hold tza long if you bought it high will it eventually come back up!To where you bought it! Or is it a loss!

  8. I actually trade them all the time. In fact, they are the only thing I trade. Here is what I will say. I’ve studied their movements every day for years before I came up with my strategy. Most trades are quick…some as fast as 5 minutes. You need to play breakouts only, and get out and reverse your position if it breaks the other way. That’s the short story. These are not etf’s to hold onto or not watch very carefully as most of you have noted. They will slam you. You need to watch candle movement, pick your entry based on a strategy, and get out as quick as you are satisfied and how the candles are still forming.

    • Ryan, I got caught long and slammed like you warned, and went through the split. I held TZA way to long and am way in the hole. Since the Fed MAY taper in September, would you keep holding on a couple more months, or sell before the ship sinks and take the loss? Thx

Comments are closed.

Thoughts on $TZA and $TNA

I’m working into the night on my trading strategy, so am going to post again despite having already posted just this afternoon.  I don’t know if these posts help anyone else, but they help me clarify my own thoughts.

I’ve been trading TNA and TZA.  Both are flip sides of the same coin  The former is triple-leverage Bullish on the Russell 2000, the latter the same on the short side.  As options tend to be, they basically are a zero-sum game, when one goes up the other goes correspondingly down, though some correctly will quibble with that and note that they do not completely cancel each other out.  For the most part, though, they are Yin and Yang.  If you are playing the Russell up, you long TNA or short TZA, and vice versa.  Anyway,  I’ve noticed a few things which might be of interest.

These are not for the faint of heart.  They definitely are NOT for newbies, and nobody should play them on margin.  You will blow your account.  Some folks think these are the crack cocaine of ETF’s and should be banned.  Whatever.  They move fast and are unforgiving.  They are said to be good only for daytrading, but doing that can be extremely dangerous.  They move so fast that if you get the direction wrong, you are hosed.  If they don’t come back, you are out.  Either you’re right, or you lose.  No other likely outcome.

I find that, despite all the admonitions and warnings, they still can be worthwhile.  One way is just to time them right.  Figure out the right timing and direction, and you are golden.  Unfortunately, I have found in my trading career that it almost impossible to get timing and direction right at the same time.  Well, it is possible, and we all do it at times, but to do it over and over again with few errors, that’s impossible.  Yes, impossible.  I don’t care who you are.  It’s impossible.  IMPOSSIBLE.

OK, so now that you know where I stand, why do I trade them?  In part, it’s been a learning experience.  I wanted to see what they can do.  I think I’ve succeeded at that modest goal.  If you learn how to handle nitroglycerine, then working with dynamite becomes a little less stressful.  I refuse to be intimidated by any securities.  I am now comfortable with them.

But, of course, the objective always is to make a profit.  I have found – and maybe this is just me – that trying to daytrade them is very difficult.  They are just too unforgiving.  They will say “Adios” to your entry point in the wrong direction in a heartbeat.

But swinging is another matter.  Yes, they lose their value over time and you can’t hold them for years at a time.  But I don’t think any of us WANT to hold these trading vehicles that long.  If you want to buy and hold, I can give you a whole list of great, great stocks (GE, ED, INTC, etc.).  But so can anyone else.

My point in writing this is to give you a different perspective, perhaps, on these two particular trading vehicles.  And that is what they are, trading vehicles.  They are not for widows and orphans, as the saying goes.  You buy them in order to sell them, not to harvest dividends and wait for splits.

But saying they are trading vehicles does not mean a good holding time is necessarily measured in minutes.  When you trade like that, you may get the odds in your favor through various technical measures, but really you are just gambling.  You are simply gambling at one of the easier tables in the casino.  That’s really the essence of daytrading.  There are very, very good gamblers, and very, very good daytraders.  If that is you, you have my admiration and respect.  But my experience is that very, very few people are good gamblers, and very, very few people are good, consistent daytraders.

You should only use these particular vehicles, in my humble opinion, to play a trend.  Doing anything else reduces your odds of success to well below 50%.  You can play the bounces in a counter-trend, but you better be nimble and lucky at catching the real bottoms, not the bear flags.  Otherwise you are hosed.  Plain and simple.

It is much wiser to play in the direction of the trend.  Then, even when you misjudge a bottom, long- or short-term,  you stand an excellent chance of the instrument recovering.  Try that with a counter-trend play and you may be waiting a long time.

If you are going to play a trend, you can daytrade, for sure.  But if you are confident you have the trend nailed, I would not to do that.  You actually reduce your risk by just letting the position ride until it is time to sell.  If unsure about when to sell, wait for the market to tell you.  With these particular securities, that can be a dramatic, even traumatic experience.  I don’t think that anyone who was holding and watching either of these things in the last hour of trading on October 4, 2011 will ever forget that experience.

If you were holding TNA then (perhaps in anticipation of a trend change due to oversold conditions), the generic advice that these things are only worth daytrading would have been completely wrong.  It would have cost you gains.

TNA October 2011

The highest-reward strategy, in hindsight?  Well, if you thought the trend had changed, that is easy.  Hold the darn thing!  You would have almost a double after three weeks.  Try doing that with AAPL or some bond.

Hindsight is always perfect.  But my point is, if you make the decision to ride the trend and, of course, catch the right trend, this strategy works.  When I say the “right” trend, well, let’s look at TZA during the same period:

TZA October 2011

Well, the optimal strategy for this would have been to sell it at some point during the previous uptrend.  Over a third of the losses on this happened in 45 minutes on October 4th, just as the same amount of gains accrued during that time to TNA.  But once this turned, it didn’t really look back.  These instruments are volatile, but they respect the trend.  So either ride it, or completely avoid it.  Don’t try to fight it.

There are a few other things worth noting.  You don’t want to hold these until the trend ends.  You can see the results of that with TZA.  Blink, and you lose a huge chunk of your gains.  Get out while the getting is good.  With these more than anything, getting greedy will hurt you.   Conversely, if you do think a trend change is imminent, it is prudent to pick some up BEFORE the trend changes.  Yes, you will have to hold it at a loss for some period of time.  But look at the potential gains of doing so!

There are some, shall I say, advanced strategies you can play with these.  Trader 3xshort in StockTwits suggested shorting the opposite instrument for the direction you want, rather than going long.  So, if you think the market is up, you don’t long TNA but instead short TZA, and if down, short TNA.  I’m not sure I understand the math involved, but that’s something to consider.

You also could consider simply shorting them and waiting for them to go to zero.  That will take some patience, but I’m told there are gains to be had by doing so.  Maybe someone else can work that out in greater detail.

Finally, some claim to hold both at once, and adjust their positions based on market conditions.  So, if the market rises, you would take some profits in TNA and keep your TZA, and so forth.  That strategy requires a lot of patience, but I can see how it could make you money, though it also would tie up a lot of funds.

Let’s turn from the abstract to the practical as of today.  A lot of people think the market is getting over-valued.  Others, of course, think we are going straight to 1400 on the S&P 500.  That’s what makes markets.  I can see valid points on both sides.  But traders have to make decisions, otherwise they don’t get paid.  I’m leaning heavily into the first camp.  I think a market turn is coming, and soon.  Surveys show the herd turning from Bearish to Bullish, the Europe news is out and no longer driving things, and an awful lot of weak hands are holding an awful lot of profits.  And I’m won’t waste your time going through all the technical indicators showing an overbought condition, you’re all aware of what a four-week rally without a pause does to the charts.

One curious and almost completely coincidental point leaps out at me.  TNA bottomed on October 4th at 26.67.  TZA just bottomed yesterday at 27.20 (see charts above).  May not mean a thing.  TZA may go to 10, who knows.  But quite an interesting coincidence, in such similar circumstances.  Yin and Yang….

As I said, you could see a lot of gains at the turn, but trying to time the trend change is next to impossible.  For that reason, I made the decision to pick up some TZA today and wait it out.  Yes, it is a wasting asset, but if the trend does change to the downside as has happened with some regularity recently, the gains could be tasty.  It may be a day, it may be a week, it may be longer, but eventually this market is going to turn.

And I’m going to be there waiting.

10 Responses to “Thoughts on $TZA and $TNA”

  1. Hey Slayer good ideas on XXX s.. I ususally use very small portions so I can average down until it rips. But never more than my total alloted amount for the trade.. Thanks

  2. I actually tried this strategy years ago. I did well until one day like yesterday when the market just took off in one direction and I was already in the hole. Within days I was 10K in the hole. Furthermore I was recycling dollars and making Etrade rich. Hard to beat the HFT machines in this game that way. I can only say good luck.

  3. Everyone points out that sentiment is too bullish now for the market to continue to rise. Everyone also seems to expect at least a short-term pullback. Those two reasons alone are why we will continue to go up.

    1450.

  4. I’m with Vegastrader.
    I took a real hit being on the wrong-side during this Twighlight Zone rally. However, I may try the Ying-Yang strategy (brokers love that) as I’ll need the leverage to get this disaster kick-started again.
    The problem with holding single inverse leverage (wrong side of market) is that your Uncle Point usually coincides with the exact moment the markets move in your favour. And that one smarts. A dead clock has the right timing twice a day — inverse leverage better be right and better be quick.
    Good luck. And good thoughts there.

  5. Back in 09-10 FAZ dropped to below $3, if I recall, and has reverse split quite a few times. Wasn’t it 60 Minutes who did a show on daytraders and one of the best, out in San Diego, made tops 100K? The leveraged ETFs are generally murderholes and serious risk management and hard stops must be adhered. Or, buy small if you really want to play. The market is all about capital preservation, I have learned that from some really great traders, and very seldom, VERY SELDOM, do they trade these leveraged products.

    • I am not sure if 60 minutes said that, but that is ludicrous. I was a professional daytrader for four years, and netted a great deal more than that in two of those years. The best traders I worked with made over 7 figures in 2008 and 2009.

  6. These 3x ETF’s bury many many more people than they make, thus I avoid them at all costs now, but YMMV.

    As an alternative, why not just buy in-the-money calls or puts on IWM? Your max risk is clearly defined, you can gain more leverage with a smaller amount of capital and you can actually do technical analysis on Russell index or IWM charts. By buying ITM, your premiums will be higher, but you at least have some intrinsic value (unlike OTM lotto tickets).

    Additionally, trying to glean technical information from 3x charts (especially 3x inverses) is a dicey proposition…at best.

    I know the allure of jumping on these 3x’s for 5+% daily gains is enticing…but the reality is you are eventually going to be on the receiving end of more 5+% daily losses than gains. As flyaway said, it’s about capital preservation…IMO, these instruments are the antithesis of how to best preserve capital.

  7. Should you Hold tza long if you bought it high will it eventually come back up!To where you bought it! Or is it a loss!

  8. I actually trade them all the time. In fact, they are the only thing I trade. Here is what I will say. I’ve studied their movements every day for years before I came up with my strategy. Most trades are quick…some as fast as 5 minutes. You need to play breakouts only, and get out and reverse your position if it breaks the other way. That’s the short story. These are not etf’s to hold onto or not watch very carefully as most of you have noted. They will slam you. You need to watch candle movement, pick your entry based on a strategy, and get out as quick as you are satisfied and how the candles are still forming.

    • Ryan, I got caught long and slammed like you warned, and went through the split. I held TZA way to long and am way in the hole. Since the Fed MAY taper in September, would you keep holding on a couple more months, or sell before the ship sinks and take the loss? Thx

Comments are closed.