iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
23,417 Blog Posts

Gameplan for Scared Money

The problem with having a large cash position is that it makes you lazy. You just wait there, hoping for God to present himself to you and offer you true elixirs. Sadly, what is likely to happen is the market will turn and you will miss that glorious melt up day. Many of you thought it was today. But the signs were everywhere, proving the contrary.

Back in 2008-2009, my main course of profit was via 3x inverse etfs. If you have 30% cash and 70% long high beta stocks, it makes perfectly good sense to buy a 3x index etf, like TZA, to hedge your longs. However, at this very moment in time, and I only tell you this because we are in crisis, The PPT is flagging OVERSOLD. The last time it flagged OS was back in early October, just before the epic melt up.

Having said that, after we get a sharp rally, the following etfs are all suitable hedges against high beta longs.

ETF/ 1 Mo returns

DWTI (3x inverse oil) +90%

ERY (3x energy bear) +50%

EDZ (3x emerging markets) +30%

TMF (3x treasury bull) +22%

On the flip side, if you are scared to buy stocks, an alternative play would be to short treasuries, via TBT or TMV. Rest assured, whenever the market decides to bounce, TLT will trade lower, substantially. Shorting treasuries up here seems to be a low risk, long the market, directional trade.  I am purposely avoiding country etfs, like RUSS and BZQ because both Russia and Brazil are too oversold to pile on here. I am also avoiding gold and volatility etf’s, due to the inane nature of both instruments.

With my money, I am likely to do very little, as my tolerance for loss is at zero. Hedging will likely be done after a rally through index puts.

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18 comments

  1. zombie

    FIG

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  2. xxxhuggiebearxxx

    i am saddled short EEM puts, need a two dollar bounce into Friday’s close. FFS.

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    • profiteerer

      Short EEM puts? Are you nuts? And yes, I would have asked the same thing a week and two weeks ago.

      Ugh, what is it with the facination with trying to catch falling knives? How many times does one need to be cut into shreds to understand that it’s a losing strategy in the long run. You can get lucky here and there, but the big oversolds/overboughts that just get more and more oversold/bought are the ones that are fatal.

      Shorting puts when the VIX is 60? Sure. Below 20?!?!?!

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      • profiteerer

        *fascination. Sorry for the typo(s).

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      • xxxhuggiebearxxx

        Its way more complicated than that, unfortunately. But also dumber.

        I was long EEM on a system driven trade, hedged with a bear put spread. I got a sell signal, and sold the long portion but missed my price on the short portion.

        Ever since that day calamity has struck day in and day out. Absolutely ridiculous.

        Yes I fucked up, but i wasn’t trying to catch a falling knife. Just really, really poor execution on my part.

        I’ll get my bounce and the damage will be reasonably contained in the end.

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        • profiteerer

          Yeah, I’ve been there. It is a bummer when the market moves so aggressively, but that’s also why you’ve gotta cut/reduce that naked exposure ASAP when vol picks up. I’m terrified to get back into those sorts of strategies (theta/premium sucking) due to months like this one that inevitably show up. Live and learn. Hopefully you do get some breathing room on the position.

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          • xxxhuggiebearxxx

            I have lost more money trying to catch a few pennies on limit orders that I would probably be up massively on lifetime trading…i dont know why i bother with limit orders.

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  3. pistolpetem21

    Hugs, serious question, because it seems like you’re always hanging upside down, off the side of cliffs: is trading your FT job?

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    • xxxhuggiebearxxx

      No, definitely not, but at times I have put as much time and effort into it as a full time job.

      My trading records go back to 2004 and I am up over the entire history, after fees and such, but only about 25%.

      I would have done better with a buy and hold strategy, obviously.

      My current strategy is more buy and holdish, with some long term trend following aspects.

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      • xxxhuggiebearxxx

        Also worth noting I am way more conservative these days than I once was…I have never been up/down more than -10%/+10% this year….so when I am wining it is usually only a few percent at stake. I think I have lost around 4% in this last three weeks.

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        • pistolpetem21

          Glad to hear that’s the case. I’m by no means Mr. Risk Manager, either. Of course, we can’t all have such mastery of risk, the likes of Canada’s biggest toolshed, the self-proclaimed leader of New Wall and prolific #timestampper Keith McFlurry displays on a daily basis.

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  4. vandamme

    we haven’t had the blow off top in TLT yet – long TMF can bring you back to flat FLY sooner than you think (no prophet).

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    • Dr. Fly

      You realize that I was the only treasury bull on planet earth earlier this year, right? I refuse to buy up here.

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  5. iflyjetzzz

    I’m more buy and hold/write covered calls type investor nowadays, unlike most here.

    The strategies I’m using right now are to:
    1) Write out of the money naked puts (Jan expiry) . That forces me to hold dry powder ‘just in case’ I get assigned the stock.
    2) Put in well below current price limit orders.

    Over the last few days, I’ve had both types of above orders execute but still have some dry powder. I’ll hold off on any further orders, as oil’s still falling tonight.
    I’ve got a lot of covered calls expiring this Friday, and plan on writing some January calls that are likely to execute. I will also write some deep out of the Monet covered calls that are very unlikely to execute.

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  6. diana2010

    Hi Fly,
    I always enjoy your blogs. Thank you for sharing your thoughts on such a regular basis.
    In the blog above, you forgot to note that EDZ is a bear ETF.

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  7. Marc David

    I’m taking the day off to be in front of the TV for the fireworks. I may or may not have a 40oz or champagne open at the time. Kinda early.

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  8. budh

    Scared money should stay away.

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  9. queequeg

    I know you are not much for technical patterns Sir Fly but the $RUT seems to be forming an inverse head n shoulders on the daily charts (right shoulder forming now)… Target of the rally – $RUT 1320 should the formation play out. Capitulation by Friday IMHO.

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