Shorting financials.

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#1 Wed, Jun 15, 2011 - 10:45pm
Ratatouille
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Shorting financials.

Somebody talk sense into me. FAZ looks too good to be true.

Edited by: Ratatouille on Nov 8, 2014 - 5:16am
Wed, Jun 15, 2011 - 11:53pm
Dr Durden
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Just watch Max Keiser for

Just watch Max Keiser for about 27 minutes and you'll get the motivation up to short everything even remotely tied to the financial terrorists...hehe...

Seriously, just make sure you understand how leveraged ETF's actually function before loading up. 

Got GIABO? "It's called the American dream, because you have to be asleep to believe it." ~George Carlin
Wed, Jun 15, 2011 - 11:57pm
SilverStallone
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FAZ

Very possible you have a good short, most likely you'll have two up days on decreasing volume following todays move, keep in mind your charts/indicators. take a look at your hourly, daily and weekly, macd up, stoch up, momentum up, Bollinger bands. 

Seems to me that on the daily charts it broke and closed above it's 200ma and looks like resistence is about 52 - 54 so if you go short keep a watch for a correction to 48 - 49 from there you may see more strength to continue the uptrend, so keep a close watch and remember 10% of something is better than 100% of nothing.

Hope this helps and good luck. 

Thu, Jun 16, 2011 - 7:45pm
Spinny
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I don't think it is to good

I don't think it is to good to be true. The system is screwed. There is TREMENDOUS downside potential here.

The real question is what can go wrong with the trade?......I can't think of a whole lot. Nevertheless I am watching this VERY closely.

I watched an interview by that Nigel Farce?? guy, the independent Ron Paul type of the EU. He said he could see a Greece default in weeks. That would rock for FAZ.

What is the biggest public fallacy about market behavior? That markets are supposed to make sense. ~ Richard Dennis
Thu, Jun 16, 2011 - 8:23pm (Reply to #4)
Violent Rhetoric
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Just be aware of tracking

Just be aware of tracking error you may experience in leveraged ETFs

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as “bad luck.” ~ Robert Heinlein
Thu, Jun 16, 2011 - 8:29pm
Ratatouille
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Yes, I know, it's all true.

Yes, I know, it's all true. Tracking error, LOL, love it. "what can go wrong?" haha. grimace. Been there, done that, got burned, but KNOW I was right... I wish PMs would trade on real value, but not for a while, I think.

Fri, Jun 17, 2011 - 2:21pm
Violent Rhetoric
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If you got in early this AM

If you got in early this AM then you have done well since FAZ has rallied from the morning lows as stocks have pulled back to now. If so congratulations! FAX scares me a little but best of luck to you. I've been in TWM a few weeks so maybe we can ride the R2000 and R1000 financials down together. Good luck.

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as “bad luck.” ~ Robert Heinlein
Thu, Jun 23, 2011 - 8:35pm
Ratatouille
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Careful, now.

FAZ should be an interesting watch for the next couple of weeks. Good luck to all in The Turdom!

Fri, Jun 24, 2011 - 9:41am
Violent Rhetoric
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The story on the Italian

The story on the Italian banks may not matter too much but it can't hurt FAZ.

Zero Hedge:

Moody’s changed its outlook on 13 mid-sized and smaller Italian banks to negative, and warned them of a potential downgrade. However, Italian PM said Italian banks are well capitalized, and is not worried about Moody’s warning

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as “bad luck.” ~ Robert Heinlein
Fri, Jun 24, 2011 - 7:44pm (Reply to #9)
Ratatouille
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Well, like you say, VR, FAZ

Well, like you say, VR, FAZ is influenced 90% by the NY Fed and 10% by world banks, at least imho. But you don't see the strong support for financials that you used to see. Just imo, correct me if I'm wrong.

Thu, Jun 30, 2011 - 9:22pm
Ratatouille
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This part of the limb looks sturdy enough...

Long weekend ahead, following a mighty mouse push on financials this week. Could be a good time to put FAS behind bars.

Thu, Jul 7, 2011 - 9:51am
Violent Rhetoric
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WOW. I go off grid

WOW. I go off grid backpacking for a few days and look what happens.

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as “bad luck.” ~ Robert Heinlein
Fri, Aug 5, 2011 - 6:51pm
Ratatouille
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Frog boiling

FAS puts are looking good, but frogs are starting to stir around and kick a little. FNMA is kicking up a storm.

I believe it's time to pull out of the pot until it cools a bit.

VR: Backpacking? What a coincidence! I just got back, myself. Did you see any bears? I didn't. Snakes, though. Lots of them.

Tue, Aug 9, 2011 - 9:18pm
Ratatouille
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Next stop?

Well, that was fun.

It looks like the financial dragons are back in the sky again, at least until the relief/euphoria over the Fed's stealth bomb fades.

Silver is looking interesting again. I think I will stack up a few more silver coins, and watch the options action for a call entry point (baby steps). Best wishes to all here.

Tue, Aug 9, 2011 - 11:57pm (Reply to #14)
Sabin
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FAZ puts

Ratatouille. I wonder if it would be worthwhile to do a put on FAZ Sept 52-55 range. We all know that financials are in big trouble. Just a thought, could be fun.

Wed, Aug 10, 2011 - 12:12am (Reply to #15)
Ratatouille
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Uh oh

Well, you may have something there, Sabin, but it's too risky for me. I try to stay under the radar (and fail miserably, apparently).

Wed, Aug 10, 2011 - 7:45pm (Reply to #16)
Sabin
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Err.. I mean calls

Calls would be better, as FAZ is 3x Short Financials. It went up 11! today. Puts would be a bad idea at this stage.

Thu, Aug 11, 2011 - 12:51am (Reply to #17)
Ratatouille
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Aha, yes, you're right

You're right, Sabin, I wondered where you were coming from before. Sorry, I didn't realize you had made an honest mistake; sometimes I am a little paranoid on the internet. However, due to the degradation of ultrashort ETFs, I think you might be a little better off buying puts on FAS than calls on FAZ (unless the premiums are out of whack, which is sort of the case now).

I have (ouch) considerable experience with these ETFs. I will just say that I have learned the hard way to be very, very selective about timing them. Many say they should never be held overnight due to the statistical degradation that occurs (google it if you don't know what I'm talking about). If you are willing to live with a little price erosion in return for large anticipated returns, a few weeks is not an inordinate amount of time to hold, but I wouldn't go any longer.

After seeing the action today, I wish I had not sold my FAS puts yesterday morning. Rats. But that's the nature of the beast; never look back, right? I've seen enough bear traps to be suspicious, but I have to admit that the signals are screaming that financials will take at least one or two substantial hits in the next couple of weeks.

I'm sure there are some options traders here who could comment about option pricing, but I would just remark that option pricing is a lot more negotiable than the pricing of an underlying security. Especially for an option that has low trading volume. So don't take the "last price" as THE price; make a low bid if the market is slow, and you might be surprised to get it.

Popularity counts. Right now, shorting financials is popular and you'll pay a steeper premium to do it with options than you would have, say four weeks ago. Those out-of-the-money premiums can be devious bastards and you can be right with the direction of an underlying equity or ETF and still lose money. Be careful; my best option bets were placed when the underlying securities weren't popular.

One last thing, and then I'll shut up. You probably already know all this. But let's say I want to have a position of $2,000 in some option. I rarely buy more than half my target investment upfront; that allows me to average down my cost if I'm temporarily wrong and I have one of those "What the heck was I thinking?" moments, but I don't want to just cut losses. Timing is everything with options, since there are expirations. Nobody is right 100% of the time. Nothing goes straight up, or down, in a NORMAL market. (Lately I wonder where the selling corrections will come from, though. GS? I doubt it. They are probably shorting their own stock now, no offense.)

Good luck!

Thu, Aug 11, 2011 - 7:12pm (Reply to #18)
Sabin
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No worries

The funny thing is those mistaken 54 FAZ puts would have been amazing today if bought yesterday. This whole week could have been buying Puts and Calls back and forth each day.

It would have been riding the vomit comet. No thanks. However after today and with the halting of short sales something silly like 1 FAZ Sept 75 could turn mighty green. I save most of my grand "ideas" for my virtual account, then I am only kicking myself if things turn green. Otherwise it feels good to know I didn't lose my shirt on a bad call/put.

Also I did notice the spread in the FAZ options, puts just a little out of the money are much lower than the corresponding call. 2x and 3x ETFs are scary business in general.

Thanks for your wisdom and good luck to you as well!

Thu, Aug 11, 2011 - 8:18pm (Reply to #18)
Dr Durden
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Ratatouille wrote:I have

Ratatouille wrote:
I have (ouch) considerable experience with these ETFs. I will just say that I have learned the hard way to be very, very selective about timing them. Many say they should never be held overnight due to the statistical degradation that occurs (google it if you don't know what I'm talking about). If you are willing to live with a little price erosion in return for large anticipated returns, a few weeks is not an inordinate amount of time to hold, but I wouldn't go any longer.

Is there a better way to get exposure to shorting this POS market other than with an ETF?

I can't do margins, I'd never leave the house and I'm not that type of investor/gambler.

I do understand how the leveraged ETF's track, but have managed a cumulative 85% net gain in the past week with pretty accute timing. I just break down the math and take up positions/limit orders. Call it lucky, whatever. 

Got GIABO? "It's called the American dream, because you have to be asleep to believe it." ~George Carlin
Sun, Aug 14, 2011 - 4:22pm (Reply to #20)
Ratatouille
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Lots of ways

I'm not sure I understand the question correctly, but if it is 'what are the ways to short the market?' then the ways that come to mind are: inverse ETFs (they come in all flavors/industries/indexes and sizes and are probably the easiest way to short an industry or index without having a margin or option-approved account); options (buy puts on stocks/long ETFs or buy calls on short ETFs, but this method requires filling out a couple of papers with your broker saying you understand how to do them and release them from liability, etc.); and just outright shorting stocks or ETFs by selling them without actually owning them (but requires a margin account).

There may be other ways that I am not aware of; others should please feel free to chime in.

If you haven't filled out the paperwork for options trading, I would do that before anything else. They've already banned short selling overseas and I can just see them trying to curtain options trading in the U.S. (especially by retail clients, who are always at the bottom of the food chain) by making it more difficult to get an options account. I suppose it's theoretically possible that they could also require more paperwork for trading inverse ETFs, all in the name of protecting consumers, of course.

I've been thinking for the last couple of years that when we start reading about new regulations to ban short selling, that will be the time to go short the market...

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