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Shorting Financial, Sorry What?

Published on November 20, 2009

Shorting Financial, Sorry What?

November 20, 2009

Don’t read further if you are convinced that financials are now in a new bull marlet and nothing can take them down. And don’t invest even a single dollar based on following post unless you are fully convinced and you have  capital that you can risk 100%.

I am shorting financials via FAZ (FINANCIAL BEAR 3XNEW). I think the system clean-up didn’t happen as much as was needed, financials are overbought, there is most probably a second wave of mortgage defaults in the immediate future as a result of Alt-A and Option-ARM resets, banks are hoarding cash, etc. There are equal number of reason supporting both bulls and bears. Net, even though one might say that recession is over (technically), my personal view is (and it may change any time as markets are dynamic), recovery is not so near. Sooner or later, the mess will be uncovered. (You may want to read some views from John Hussman in this area).

Why FAZ? while on hand this is 3X short, it’s value also increase due to volatlity. Usually the fall is faster than the rise, and if (a big if) financials were to face tough time ahead, FAZ will gain quicker. At the same time, pls also note that it may or may not gain exactly as three times.  You may want to read here to know more about how ulta shorts work.

My another short bet is the SRS (ProShares UltraShort Real Estate), which seeks daily investment results that correspond to twice the inverse daily performance of the Dow Jones U.S. Real Estate Index (the Index). I also think that the risk to commercial real estate not that much know yet.

So here I am, a small % of my capital is on this speculative one (that I can afford to lose and sleep without worry) is on SRS and FAZ.

Disclaimer– I have positions on both FAZ and SRS as pf this writing. I may change those positions anytime depending upon the need to change.

Profitable Trading, OP

One Comment

  • Avatar OptionPundit says:

    I rolled over Dec 20 calls to Jan 20 calls for $1.20 credit.

    Record keeping-
    – Bought shares @ $19.6
    – Sold Dec 20 calls @ 1.78
    – Rolled Dec 20 calls to Jan 20 Calls @ 1.20

    Thus cost of the shares $19.60-$1.78-$1.20=$19.60-$2.98=$16.62 (by Jan expiration), current price $20.3

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