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By Chris McKhann

Option plays on UltraShort funds can layer on leverage and complexity quickly, and that is exactly what we are seeing today in one trade.

TWM ChartThe UltraShort Russell 2000 (TWM) exchange-traded fund, which looks to deliver twice the inverse daily returns of the Russell 2000 Index, is down 1.39 percent to $21.29. The Russell 2000 Index (IWM) exchange-traded fund, meanwhile, is up 1 percent.

So the TWM is doing what it's supposed to do. Although down today, it is still up from $19 at the beginning of the week.

The big trade here is the August 29 calls. Someone sold 6,000 of those calls for $0.85. This was against open interest of just 10 contracts, so it was a new opening position. The total average daily option volume has been less than 1,000, so this trade is unusual.

The call selling is a bet that the TWM won't climb above that level by the October expiration. That $29 price level is one that shares haven't seen since November 2009. That corresponds to an IWM price below $58 at the same time, while the ETF trades at $64.17.

This TWM call selling is similar to selling puts in IWM, except that it has even more risk. The TWM was up above $116 in March 2009.

(Chart courtesy of tradeMONSTER)

Source: Risk-Taking in the Russell UltraShort ETF