{"id":102,"date":"2010-06-10T12:26:20","date_gmt":"2010-06-10T16:26:20","guid":{"rendered":"http:\/\/www.cheapiv.com\/?p=102"},"modified":"2010-08-20T11:12:14","modified_gmt":"2010-08-20T15:12:14","slug":"skf-proshares-ultrashort-financials","status":"publish","type":"post","link":"http:\/\/www.cheapiv.com\/?p=102","title":{"rendered":"SKF – Proshares UltraShort Financials"},"content":{"rendered":"

To see how we traded it login on right: Details will appear below!<\/h2>\n

Update 8\/20\/2010 10AM<\/p>\n

Since our last update, the ETF has sold off to slightly above $19 and rallied back to $22.5 today.\u00c2\u00a0 The market is selling off and this inverse ETF looks like it could rally hard.\u00c2\u00a0 We will play it somewhat conservative here with a small profit.\u00c2\u00a0 I am taking a wait and see approach for what news comes out over the weekend.\u00c2\u00a0 Long term outlook is still very negative on this economy, so holding this position in January is still somewhat of a portfolio hedge.\u00c2\u00a0 We could sell some options against this position if we wanted.\u00c2\u00a0 The Jan. 30 calls are $2.25 and the Jan. 35 calls are $1.75.\u00c2\u00a0 Both of these would give us plenty of premium to collect if we do get another short squeeze rally in this market.\u00c2\u00a0 For now I am holding the long Jan. 20 Call naked with a small profit of $0.45 per contract, from buying back the Jan 35 calls from the initial position.<\/p>\n

The trick here is giving ourselves enough time to absorb the short term movement and play the medium larger moves.\u00c2\u00a0 If I make any adjustments, then I will keep you posted.<\/p>\n

Update as of 7\/28\/2010 10AM<\/p>\n

Quite frankly I have not been aggressive enough with this position.\u00c2\u00a0 I should have been trading it back and forth these past few weeks playing the ups and down in the market.\u00c2\u00a0 We have had a nice run in market and it may continue, but I am going to get a little aggressive here and buy back my short Jan 35 call for $1.25. I sold the call at $2.6 when we did the initial spread.\u00c2\u00a0 The other leg of the spread was buying the Jan. 20 Call for $5.6.\u00c2\u00a0 This is currently trading for about $3.2 so a loss of $2.4<\/p>\n

Overall the position is down $1.05.<\/p>\n

If the market turns over and the Jan. 20 Calls gain in value then I will most likely sell another upside call against it.\u00c2\u00a0 I may get a little more aggressive on that call I am selling. By this I mean that I may move the call down from the 35 strike to maybe the 30-32 range.\u00c2\u00a0 This will depend on the prices at that time.<\/p>\n

If the market continues to go higher, I will make the decision of exiting completely with the loss or selling something more aggressive against it like the 28-30 range.\u00c2\u00a0 I am letting the market dictate which direction I will play.<\/p>\n

Initial Position:<\/strong><\/p>\n

I think the market has been due for a rally, but there seems to be so much bad news out there that it is difficult for anyone to feel confident that our economy is on track. Yesterday, Bernanke danced carefully in front of a Congressional committee.\u00c2\u00a0 My favorite line was:”I’m trying to avoid taking sides on this because it’s really up to Congress to make those decisions,” he told Rep. Michael Simpson, R-Idaho.\u00c2\u00a0 That was the reason he was there, to give his opinion.\u00c2\u00a0 One thing that we can take away from this talk was that the US has to get their debt under control.\u00c2\u00a0 We know that is not going to happen.\u00c2\u00a0 We are headed down the same road as Greece, but in a much larger global economy.\u00c2\u00a0 So what stocks are still the most at risk? Financials.\u00c2\u00a0 Read Below to find out how to play one ETF that is only 6% off of it’s lows and $223 from it’s highs.<\/p>\n

Banks closings are still happening, even though the media does not cover them.\u00c2\u00a0 Analysts are projecting the banks closings to peak in 2010, but we know that can’t be true.\u00c2\u00a0 The bank closing will not stop until the housing market gets under control.\u00c2\u00a0 The housing market is driving foreclosures.\u00c2\u00a0 Banks are not lending and the rate of refinancing for troubled homeowners is not even worth mentioning because it is not even scratching the surface.\u00c2\u00a0 Low interest rates should be getting everyone and their cousins to refinance, but bank rules are very tight at this point.\u00c2\u00a0 Banks are failing because both commercial and residential real estate are having very high foreclosures.\u00c2\u00a0 Even though the banks don’t have to report the Level Three assets ( those hard to quantify), most are having a hard time dealing with the foreclosures.\u00c2\u00a0 Most failed banks are costing the FDIC around 25%\u00c2\u00a0 of assets of the bank.\u00c2\u00a0 Apply that loss to the remaining banks in our nation because that is what these banks are hiding in their level three assets.<\/p>\n

Our government has taken away transparency of these banks by hiding the true losses or mark to market under the FASB Rule 157.\u00c2\u00a0 This combined with the 25% cost to FDIC makes me very scared that will several more years of bank failures.<\/p>\n

One of the easiest ways to play the complete breakdown in the financials is SKF.\u00c2\u00a0 This is the Proshares UltraShort. The Yahoo Profile : “The investment seeks daily investment results, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Financials index.”<\/p>\n

\"\"<\/a><\/p>\n

To see how we traded it login on right: Details will appear below!<\/h2>\n

[private_free]<\/p>\n

This ETF has moved up from a low of $16.71 on April 15th.\u00c2\u00a0 The high which was around $250 was back on the when the market was making lows in 2009.\u00c2\u00a0 We are currently trading around $22. Implied Volatility is slightly high so I would advice placing a vertical spread to offset any drop in IV.<\/p>\n

Depending on your excess cash, exposure to financials in your portfolio, or belief in what I wrote above you can vary this vertical.\u00c2\u00a0 Those who feel strongly about the direction may not want the vertical spread and may want to make a straight call purchase of a longer term option.<\/p>\n

Even with expecting a small pullback on this ETF, we still like buying something at these levels for the longer term.\u00c2\u00a0 If all is well in the world then this ETF will go lower, but that is why we will use an option to limit our risk.<\/p>\n

With the ETF currently trading at $22.25, the Jan2011 20 Strike calls are trading at $5.60 on the offer.\u00c2\u00a0 The Jan2011 35 strike calls are trading at $2.60 on the bid.\u00c2\u00a0 If we bought the 20 calls and sold the 35 calls, that would give us a vertical call spread o with maximum gain of $15 less what we paid for the options ( $3.00).\u00c2\u00a0 We can make $12, on this trade if it closes above $35 by January expiration 2011 or before.<\/p>\n

If the market just goes higher from here and everything gets better and the SKF drops like a rock, then we are out $3 times 100 or $300 for each spread that we put on.\u00c2\u00a0 I like this play for three reasons: 1) as insurance against my portfolio, 2)cheap to get into 3) upside potential.<\/p>\n

What is the upside potential of this play?<\/p>\n

I don’t think we will see the highs of $250 any time soon unless Europe complete collapses.\u00c2\u00a0\u00c2\u00a0 Recent highs of $27 are quickly attainable though.\u00c2\u00a0 The highs before that were around $50, so if the market does start falling apart then you may want to buy back the short Jan 35 call to let this play profit for more then the $12.<\/p>\n

If time goes by and nothing happens, then we will revisit this trade and look to exit or roll the position.<\/p>\n

[\/private_free]<\/p>\n","protected":false},"excerpt":{"rendered":"

To see how we traded it login on right: Details will appear below! Update 8\/20\/2010 10AM Since our last update, the ETF has sold off to slightly above $19 and rallied back to $22.5 today.\u00c2\u00a0 The market is selling off and this inverse ETF looks like it could rally hard.\u00c2\u00a0 We will play it somewhat […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,5],"tags":[20,13,33,22,65,29,25,11,17,8,50,10],"class_list":["post-102","post","type-post","status-publish","format-standard","hentry","category-cheap-iv","category-trades","tag-banks","tag-calls","tag-debt","tag-economy","tag-etf","tag-euro","tag-greece","tag-implied-volatility","tag-market","tag-options","tag-trading","tag-volatility"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"http:\/\/www.cheapiv.com\/index.php?rest_route=\/wp\/v2\/posts\/102","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.cheapiv.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.cheapiv.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.cheapiv.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.cheapiv.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=102"}],"version-history":[{"count":0,"href":"http:\/\/www.cheapiv.com\/index.php?rest_route=\/wp\/v2\/posts\/102\/revisions"}],"wp:attachment":[{"href":"http:\/\/www.cheapiv.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=102"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.cheapiv.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=102"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.cheapiv.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=102"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}