With the market increase over the past week and a half, I decided to add a negative position. I shorted 50 shares of SSO at $37.15.
A continuing theme I have opined about since October, is that the economy is on shaky ground. Further, nothing in the private sector has convincingly driven growth—a theme highlighted by John Hussman yesterday in his Weekly Comment. At this stage of the game, I refuse to believe that any published GDP is a sign of relief unless it is concurrently free from federal deficit spending. In my eyes, taking on debt to increase assets fails to address the negative equity problem.
Independent from the economy, I still believe the market is overvalued, and this trade is a direct play on that theory.
As for executing the trade, and given the nature of how ultra leveraged ETFs work, I would rather short the ultra long (SSO) than long the ultra short (SDS). Yes, there is always a risk of a broker forcing me to cover in a squeeze, but the long positions are also susceptible to sudden price drops.
To hit the rewind button, I originally bought the June $44 put for $8 on 2/2/10 and sold it on 5/25/10 for $10.20, netting me a gain of $420.96. Today it is only worth $6.15. Clearly this is an example of buying low, selling high, and essentially buying low again.
