Seen above (second from top) is the FAS (Direxion Triple Bull Financial ETF). The FAS seeks daily investment results (intraday prices movements) of 300% of the Russell 1000 Finanical Services Index. In warning, this is an EXTREMELY risky investment and in my view, should NOT be a long-term investment, with an implied volatility of 266%. However, I am a trader and keep "short leashes" on leveraged ETF's with about a 8% stop loss. In addition, I look at the ATR (Average True Range) to get a better idea of the stock's volatility. Note, this measure does not give me an idea of price direction but it does give me an idea of price movement. 1.46 on a $2.64 stock is enough to give someone a heart attack but sometimes it comes a point where the shorts will get burned. The SKF (Proshares Ultrashort Double Bear, chart at very top) is the 200% inverse of the XLF (basic financials etf). The SKF was up 40.61% last week alone. If you look at a 6 month chart on the SKF, you will see that it hit its top on 11/20/08 at $262.80 and it retested that resistance Friday, broke through to $268, then fell during the last 30 minutes of trading to close at $250, failing to close above its 11/20/08 resistance point. To me, it looks like a double top.
At the end of Friday, I got long FAS at $2.66 and got short SKF @248. I like this trade for a few reasons. One reason is that the financial sector is extremely "overshort" and is setting up for a massive "Manhattan short squeeze". The second reason is that the SKF did not close above its resistance point. I will use the $268 (11/20/08 close) as a stop for my short cover but I think the chart pattern will repeat its self, like in November, leading the SKF much lower. The third reason I like this trade is that the mark to market meeting is Thursday and the rumor mill will be running. Frankly, if I was short finanicals, I would cover most or all of my position ahead of this meeting because if mark to market gets suspended, the "game" changes.
All in all, this trade is very risky and should be a very small portion of the portfolio. I like the risk/reward here and am putting my neck out on this one. I will post updates with any stop outs or short covers. In addition, you can look to end this trade before the meeting on Thursday; however, I believe the bottom is in the financials. As always, do your homework on this one and feel free to leave comments...
Full Disclosure: Long FAS, Short SKF
This ETF tracks the following stocks:
ReplyDeleteFAS TOP 10 HOLDINGS ( 245.46% OF TOTAL ASSETS)
Company Symbol % Assets
BK OF AMERICA CP BAC 5.39
BANK OF NY MELLON CP BK 1.96
CITIGROUP INC C 2.21
GOLDMAN SACHS GRP GS 2.26
JP MORGAN CHASE CO JPM 7.06
Russell 1000 Finl Index N/A 213.36
THE TRAVELERS CO TRV 1.65
US BANCORP USB 2.63
VISA INC. V 1.42
WELLS FARGO & CO NEW WFC 7.52
All of these stocks have been heavily shorted in the past month - short sellers will have to cover positions heading into the MMA meeting on Thursday as protection against a potential suspension or alteration of current MMA practices. Anticipation is building that this meeting will have an immediate and signficant impact to the financial sector (if positive) - financial stocks could double within a few hours. This would set a potential price range for the FAS of $5-8.
This ETF is trading with approximately 250% volatility, so trade with caution. As a disclaimer, I will be taking a FAS position early Monday. Currently hold TNA and intend to do hold until Wednesday.
RT,
ReplyDeleteI fully agree. It will be an interesting meeting but I think we are due for a nice bear market rally. Hopefully you will get a small entry price in pre-market. Buffett will be on CNBC in the AM, so he has the potential to move the futures.
I like TNA as well and I am also long...it should print $14-$15.
RF
Awesome trade!
ReplyDelete