Open Portfolio - Taking Small Bet Against the S&P 500 - Mike Swanson (08/02/12)


I took a small position in SDS today, which is the ultra-short S&P 500 ETF designed to go up when the stock market goes down.

I was thinking about shorting the market and betting against it last week, but really wanted to see what happened with the FOMC yesterday and ECB today before doing anything. That made me be about 30 points from the recent S&P 500 peak, but that's ok. I just did a small position. My thinking is the market will likely correct a bit on August and take back much maybe even all of its gains of June and July so the overall trend should be down this month. However, since I'm not on the recent high I have to give myself room to make sure I don't get shook out of this position and even possibly add to it if I decide to. I might do that if the VIX falls again below 16 1/2.

My real goal is to do big long-term investing, but to do that I need to be patient for things to play out more. So for now just looking to do a trade. I expect to get out of this SDS position in the next few weeks.

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Comments

I actually have made a (very) small amount on DXD, and then added a bit more just before the last spike up...as of the moment, I'm positive with a cost basis (inc. comm.) of 52.38. Fingers crossed I make a few hundred bucks (I'm a chicken, only have 85 shares, but am being strict about position sizing.

Decided to join the party and picked up shares on Horizons version of SDS HSD.t at $7.11. Also took a very small position in the Horizons S&P500 VIX, HVU.t at $20. If the crap hits the fan again the Vix should spike....good luck...james

It certainly appears to be in a bottoming formation w/risk/reward in a 'buyer's favor...but then if one goes waaay back and pulls up a 3 yr chart and then does some mental gymnastics to find the "measured move potential", SDS could slip slide on down to the 9.5-10 area...I've been tempted to buy it all the way down to this level in the mid 14's however, so I relate to you fellows beginning to munch on it.

Try to write Standard American English, not Southern English. That's shaken, not shook. If I want Elvis Presley advising me on stocks, I'll ask him.

Try to sound less like a douche nozzle and more like an adult human being. If I wanted to read trivial insults from anonymous cowards I would be reading Craigslist rants and raves.

Thou shalt not take my name in vain.
s/Paul Bennion (verified)

Hey Mike, in my experience SDS moves up and down quite a bit. It would be nice if it moved percentage-wise exacty twice as much as SPX/SPY in the opposite direction. I understand that using SDS as a trading vehicle, you can make more $$, but you can also loose more $$.

I suppose, if someone doesn't care, one can use SPXU, which is triple SPY in opposite direction. However, the swings in either direction get even more erratic. And the losses can be even bigger, if the market goes against you. Of course, gains can also be big if one is willing to ride out the market.

What would you say, instead, about a strategy of taking a position in SH, but on full margin? That way one can get the same percentage gain/loss as SDS, but guard against wild swings in either direction?

Been there, done that...Short the up instead of long the down and put the decay on your side.

\\// It would be illogical to assume that all conditions remain stable

exactly

Steve
Keep your stick on the ice.

It seems too early to short. The market has been making higher lows and higher highs since early June, it's above the 10 and 40 week moving averages, and those moving averages are on upward trends. Please see chart at
http://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=1&mn=0&dy=0&id=p94620219623


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