Direxion ETFs: High Delta, High Return, One Day Trade Ideas

With just 1 day left, Friday July 17, 2009, for the July options expiration, there are still several Buy/Write option strategies which will yield high returns (considering the probabilities and it is just 1 trading day). In this post I am using the highly volatile Direxion ETF shares, which seek to return 3 times a specific basket of stocks.

To understand this post and how to open the Buy/Write option strategy check out my book on my blog here.

All of the ETF option ideas listed in this post have high probability of expiring above the indicated strike price by market close Friday. All of these option call contracts are written in the money which means they'll give you significant downside protection, in case the ETF falls after purchased you'll be protected for the % indicated.

HOW TO READ THE TABLE

The first ETF listed in the table below is the Direxion Daily Large Cap Bull 3X Shares (BGU). An example of how the Buy/Write option Strategy on BGU would be interpreted as:

Buy the Direxion Daily Large Cap Bull 3X Shares (BGU) ETF and sell the July 35 Call option. This will give you downside protection of 3.53%. The current options market is factoring in a 73.2% probability BGU will close at or above 35 a share by market close Friday returning 0.86%.

All data as of market close Thursday July 16, 2009.

ETF	Strike Price	Return %	Protection %	Probability%
Large Cap Bull 3X Shares (BGU)	35	0.86	3.53	73.2
Mid Cap Bull 3X Shares (MWJ)	60	1.10	2.83	65.7
Small Cap Bull 3X Shares (TNA)	29	1.42	3.38	80.2
Energy Bull 3X Shares (ERX)	28	0.94	3.92	72.6
Technology Bull 3X Shares (TYH)	95	0.22	6.42	93.3
Financial Bull 3X Shares (FAS)	47	1.56	4.93	69.0
Developed Markets Bull 3X Shares (DZK)	50	0.09	8.72	95.7
Emerging Markets Bull 3X Shares (EDC)	85	1.03	4.05	71.7
10 Year Treasury Bull 3X Shares (TYD)	45	0.31	8.75	90.8
30 Year Treasury Bull 3X Shares (TMF)	38	1.13	3.22	67.1
Large Cap Bear 3X Shares (BGZ)	31	3.33	6.99	84.0
Small Cap Bear 3X Shares (TZA)	18	0.25	14.25	97.5
Energy Bear 3X Shares (ERY)	21	1.11	4.07	74.0
Technology Bear 3X Shares (TYP)	18	0.77	4.67	76.6
Financial Bear 3X Shares (FAZ)	39	0.53	6.35	84.4
Developed Markets Bear 3X Shares (DPK)	25	1.30	15.45	85.2
Averages		0.84	5.17	77.93

From the analysis above the two best ETF's look to be the Large Cap Bear (BGZ), and the Developed Markets Bear (DPK); this is because both are higher than the average in all three categories. However the volume on the DPK is very light making it almost illiquid to trade options on, therefore the ETF which happens to be the best based on this analysis is the BGZ.

For your convenience, I have a printable spreadsheet, which shows which ETF's are above average by highlighting the % in a color here.

This strategy is a great way to create additional income for your portfolio if your brokerage commissions arent too high. The reason option volumes have exploded over the past 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see chart here).

You may find it useful to check into this strategy for the double leveraged ETF's such as SDS, SSO, SKF, UYG, URE, and SRS as well.

Disclosure: Long BGZ, FAS, FAZ, TNA

Comments

[TCK:]

A few comments,

Typically there are big bid/ask spreads on all these symbols. On the TYH the spread is $1.00

Even on a winning trade, transaction costs could cut your percentage in half. Open and close, or assignment.

The chart shows only the probability of success implying the probability of loss is the inverse. Not necessarily so as the relationship is not "one to one" .

Even with the downside protection, there may be a 25% chance of losing 5.0% or more on these highly volatile names.

Jul 17 11:44 AM