OptionPundit

Tag: SRS

  • Shorting Financial, Sorry What?

    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

  • Citi, Uptick and Mark-To-Market

    So we had it finally. The pressurized spring bounced back and shorts were pressed against the wall to cover. Fantastic rally by all means, it was easily qualified as a 90% Upside Day on both the NYSE and the NASDAQ that too on expanding volume. Market breadth was also much more impressive during yesterday’s rally. I had never thought (Probably Vikram Pandit as well) that his letter to Citi (C) employee can spark such a massive global stock market rally. In fact there were 3 things of note yesterday.

    1. Citi CEO’s letter.
    2. Reimpose the uptick rule (An untick rule is a securities trading rule used to regulate short selling in financial markets. The rule mandates, subject to certain exceptions, that, when sold, a listed security must either be sold short at a price above the price at which the immediately preceding sale was effected or at the last sale price if it is higher than the last different price) and
    3. Possible “Improvement” to “Mark-to-market” rule

    All good till it is not. We’ll find out later if y’day was a bottom and this bull has legs to run or Bears just released ground for a technical rebound from deeply oversold levels to set stage for next down leg.

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  • Option Business aka Insurance Business

    A bounce is due, no, I think overdue. We have all realized that Mr. Market can remain irrational longer than one can remain solvent. So though the probability of bounce is high, don’t count on it for long term bull market till there are sign of economic improvement. The primary trend is bearish, as clear as that could be.

    However, this market is bringing its own unique rewards. I would like to compare it with insurance business and let’s apply their business model to option trading.

    As the risk is rising, Options’ premium is rising as well and as an option seller it is to our advantage. So why not start building positions that are going to give regular income stream. An example of that strategy is called Covered call (Covered Call is an option strategy in which a call option is written against long stock on a share-for-share basis).

    I earlier shared a real trade example of covered call on SRS, where I was able to keep full 17% of profits for 4wks. I again opened it this month and have done a few changes to maximize my yield. Of course I can’t expect to have 17% month after month, but even 5-7%, month after month via credit generation from short roll over, can result into substantial gains. Alright, Ultrashorts are not for weak heart. Let’s move on to a company like Caterpillar (CAT).

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  • Outperformance Continues at OPNewsletter

    When compared with broader markets, Feb was an excellent month for OPNewsletter coupled with a few good learnings (kinda reinforcement, been there done that, but forget that). Overall, OPNewsletter for Feb closed up +5.6% x-commissions and +2.6% including commissions. Capital preservtion and thus allocation was higher priority vs missing an opportunity.

    These results doesn’t include the speculative directional trade which were shared here (only OPN subscribers can see this thread) and here at my profile on InvesCafe (Free) which includes likes of RIMM +40%, V +7.8%, BIDU +5.2%, BAC +10% to +40%, ESI + 33%, SRS, STT, WHR, BTU, AXP, CAT, ISRG, BLK and many more. I opened multiple positions where some won some lost (due to inability to fill on time as I was away and didn’t want to autotrade). Hardly any of those missed the expectations except the VXX which I intentionally closed.

    Above all, this doesn’t include future opportunities via capital preservation due to early warnings. Hope you have been reading OptionPundit and thus were aware of the Bear Market Signal that was reconfirmed recently. And of course, at least one assett class probably would have been shining in your diversified portfolio.

    I have already started investing for March’09 portfolios. if you would to sign-up, pls click here.

    Cheers and profitable trading, OP

  • Early Warning Signpost

    A few months back I shared big picture and mentioned key points to watch out for a Bear market signal. A lot has happened since then, but I still haven’t opened OPValue Portfolio (new). At the same time, nothing much has changed in the markets and we are almost closer to the earlier lows. I again mentioned key points to watch here, as specific as I possibly could. In the interest of OPN readers, I shall mention those points again with the help of a chart. Inspired from Dow Theory, I shall repeat what I mentioned to OPN subscribers on Feb 02 –

    A few weeks back I mentioned about my new warning, a danger zone as signified by Dow Transports movement and Dow Industrials. I am attaching the charts below (2 y axis chart). Though you may choose to ignore this and “potentially” benefit from double bottom and probably rebound, I SHALL CAUTION ONE TO STAY AWAY FROM EQUITIES for short period immediately followed by this danger zone penetration and breaking out of it.

    Preserve capital and that may provide plenty of opportunity in future.

    If the earlier lows can hold, it may be an opportunity to get in via double bottom (though I am suspecious of a bottom so early) and if it is penetrated, then we are probably looking for much lower levels, as I mentioned above.

    Oh BTW, do you remember this covered call with Ultrashorts, though I have made several changes to maximize gains since then, the original trade, shared for free, will be able to keep full profit (unless the market rallies strongly and SRS drops below $61).

    Trade carefully, Trade Profitably, OP

  • Outperformance : OPNewsletter Feb’09 +5.85%(Open)

    An excellent month for OPNewsletter so far. Overall, OPNewsletter is up +8.87% x-commissions and +5.85% including commissions. We didn’t have to make any major adjustments to our portfolios except one which rolled partially to next month. We closed one portfolio for +17.17% gains and except any major disastrous events on Tuesday market open, remainder portfolios stands to gain good theta decay over the long weekend. This is what OPN wants, portfolios to be as boring as possible. We didn’t get fills on two income portfolios else results would have been even stronger.

    These results doesn’t include the speculative directional trade which were shared here (only OPN subscribers can see this thread) and here at my profile on InvesCafe (Free) which includes likes of RIMM +40%, V +7.8%, BIDU +5.2%, BAC +10% to +40%, ESI + 33%, SRS, STT, WHR, BTU, AXP, CAT, ISRG, BLK and many more. I opened multiple positions where some won some lost (due to inability to fill ontime as I was away and didn’t want to autotrade). Hardly any of those missed the expectations except the VXX which I intentionally closed.

    Other highlights includes my warning on Friday when markets were going higher in anticipation of stimulus package which proved right. Not that I have crystal ball, but it’s an experience I have been observing in the events of past few years.

    Overall an excellent month except that we didn’t invest a lot of capital for income spreads (only a max of 26.5%), but as I mentioned earlier, capital preservation is higher importance than missing a potential opportunity, especially in markets like current ones. We may always make more money if we have trading capital preserved. Once trading capital is lost, we can’t benefit from any opportunity even if it is as sure as that sunrise.

    I shall be looking for March’09 portfolios. if you would to sign-up, pls click here.

    Cheers and profitable trading, OP