Tuesday, December 30, 2008

Alert: Closed out the rest of my inverse ETF positions

Today I closed out the rest of my positions in the inverse leveraged ETFs for the reasons mentioned in my previous post. I replaced them all with short positions in the long leveraged ETFs. This is essentially the same thing, but with a tax benefit and with an added bonus for time decay.

In other words...rather than owning SDS I am now short SSO. I'm also short SAA and even a little TNA for fun. As I mentioned earlier, the inverse-leveraged ETFs have trouble performing in a volatile market. They work essentially as an option with a time decay, which makes them worse as long term holds. By going short the ultra-longs, we get money when the economy declines (and it will) and we also make money from the pseudo time decay.

The trouble is that it can be very hard to short these things. I've been fighting with my brokerage, who will often let me take a position (as they claim they have the shares available to short) only to turn around a few days later and conduct a forced buy back as they claim they don't really have any shares. If this keeps up, I will just have to buy puts on the major indices. I've already bought puts on XRT (the retailing index). I bought $25 puts which expire at the end of March.

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