Chart courtesy of Stockcharts
Today we purchased the September 2009 series Call Options (FFWID) at a Strike price of $30.00 for $2.30 per contract on ProShares UltraShort Financials (ETF) whose symbol is SKF. This fund effectively shorts the financial sector and offers a 2:1 inverse ratio to the Financial Index on the DOW as described below.
ProShares UltraShort Financials (the Fund), formerly UltraShort Financials ProShares, seeks daily investment results that correspond to twice the inverse daily performance of the Dow Jones U.S. Financials Index (the Index). The Index measures the performance of the financial services industry of the United States equity market. Component companies include regional banks; United States-domiciled international banks; full line, life and property and casualty insurance companies; companies that invest directly or indirectly in real estate; diversified financial companies, such as Federal National Mortgage Association, credit card issuers and investment advisers; securities brokers and dealers, including investment banks, merchant banks and online brokers, and publicly traded stock exchanges. The Fund takes positions in securities and financial instruments that, in combination, should have similar daily return characteristics as –200% of the daily return of the Index.
ProShares UltraShort Financials seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones U.S. Financials Index.
Taking a quick look at the above chart we can see that it is very volatile to say the least. However it reflects the dramatic rise in the fortunes of the financial sector and as an inverse fund it has taken it on the chin. Also note the yawning gap between the price and the 200dma and the technical indicators which appear to be suggesting a recover.
Now if we zoom in and have a look at the chart below we can see SKF just may have formed a bottom and the indicators have managed to climb off the floor suggesting better things to come.
Our position is that the broader markets including the financial sector will soon take a breather as profit taking becomes irresistible for the investment community.
Please do not go too mad on any of these ideas, you need to be able to sleep at night. Also try and formulate your exit strategy and once you have made a purchase then go ahead and place a sell order at a level you decide is achievable and that you are comfortable with.
ProShares UltraShort Financials (SKF) has a market capitalization of $792.45 million, with 26.66 million shares outstanding, a 52 week trading range of $29.47 to $303.82 and closed today at $29.72.
Your thoughts are of course most welcome.
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