Thursday, January 28, 2010

Bookkeeping: Replacing Index Puts with Some Levered ETFs on Short Side - Temporarily

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With S&P 1085 looking like it might hold at this time (50 minutes to go) I have taken profits on all index (SPY) puts, and rolled the exposure into short TNA ETF (3x small cap) - which is actually a less levered hedge.  (In the real world I'd use TZA, but for record keeping purposes "short TNA" helps to separate what is long v short)  I am using a 6% allocation.  Willing to take some losses on that instrument if the market goes up to get some insurance, but with the bounce off 1078 the bulls look to have held their level.  Further, the "urgent buyer" who appears almost every overnight session to push futures up can make a lot of gains on the short side disappear overnight so I want to secure a profitable day  That said each time we run into a support or resistance we weaken it, and we continue to pound against 1085.  I continue to believe it breaks for good, but we just don't know if there is an oversold bounce first.  With so many stocks cratered I'm surprised we have not seen a stronger bounce the past few sessions.

Either way, technically I want to be short on (i) a close below 1085 or (ii) after some moderate bounce in the index i.e. closer to 1100 as we were afforded this morning.  A move near S&P 1110 would be even more attractive.  4-5 points over 1085 is not as compelling of place to be aggressively short, so we'll dial things down pending the action into the close.  I will reacquire some puts on a decent sized oversold bounce, or a breakdown below 1085 on a close... which of course could happen in the next 45 minutes.  Watching and waiting for now.

Amazon (AMZN) and Microsoft (MSFT) will be the 2 big names reporting earnings tonight.

No positions

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