New Trade – SDS: Playing For A Quick/Short Term Reversal Off of 4.5 Yr Highs

by Dan September 13, 2012 3:43 pm • Commentary

We don’t have much to add on the FOMC’s action today, we don’t think we can add much value on the argument whether we are in QE 3 or 4, or what the benefits or unintended consequences will be.  All I know is that additional easing and language that extends the period of which the Fed will keep rates really really really low with the SPX near 5 year highs and the yield on the 10 year Treasury at 1.80% is a bit nuts…….I am not in the mood to play the very unprofitable game of “fighting the Fed” but it strikes me that when saner heads prevail over the coming days we could see a bit of a re-tracement of the move since last week’s ECB meeting.

I have been sitting on my hands for a week or so, as it felt like we could get the break-out but with the news out of the way, I want to make a very short term bet that we get a quick reversal off of the highs, possibly back to 1420 or so in the next week.  

 

TRADE: SDS ($13.30) Bought the Sept22nd (next week) 13.50 Calls for .16

Break-Even on Next Friday Sept 22nd Expiration:

Profits above 13.66, or up ~2.5%.

-Losses of up to .16 btwn 13.50 and 13.66, max loss of .16 below 13.50

 

Trade Rationale:  This is a throw-away trade, risking what I am willing to lose.  Because the SDS is a double short SPY, it won’t take much of a move lower to break-even.  Just really need to get the direction right.   I am using leverage on top of leverage as a reader pointed out after my comment in “Quick Hits”, i Like the risk reward.   I also Bought a some SDS shares.     This is not a table pounder as momentum suggests I am already wrong.