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« Green Shoots or Greater Depression? | Main | ProShares UltraShort Financials ETF (SKF) An Option Calls »

ProShares UltraShort Financials ETF (SKF) An Option Calls Update

Having just 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 they took it on the chin today.

The Financials had a very good day with American International Group, Inc.
(AIG) closing up $5.66, or 21%, at 32.30, Citigroup chipped in with an 8.47% gain, UBS AG (UBS) with 9.65% and Bank of America (BAC) with 2.33% etc.

It would appear that a statement by the recently hired AIG Chief Executive Robert Benmosche that he would only sell parts of the company "at the right time, at the right price," was in part a catalyst for the others to get the green light as reported in this article by MarketWatch:

NEW YORK (MarketWatch) -- Financial firms paced the U.S. stock market higher Thursday thanks to an analyst-driven gain for insurers, while comments from an American International Group executive also aided the sector. A series of economic data further helped stocks as industrials, including Boeing, finished in the green.

Overall, the Dow Jones Industrial Average closed up 70.89 points, or 0.76%, at 9350.05, marking its third-straight day higher. Among the index's biggest gainers, Boeing rose 1.22, or 2.8%, to 44.74, as a report on manufacturing in the Philadelphia region and the Conference Board's index of leading indicators boosted sentiment surrounding industrials.

Setting off a rally for insurers, Citigroup upgraded Lincoln National to hold from sell, citing "near-term stabilization of the insurer's liquidity and balance sheet." Lincoln closed up 69 cents, or 3%, at 23.79. Fellow insurer Hartford Financial Services Group was also helped, closing up 72 cents, or 3.8%, at 19.84.

Even within the still-volatile financial sector, insurers have been among the most volatile. As investors debate the ability of all types of Financials to post profits in a murky economic picture, the sector has traded near the top or bottom of each day's sectors.

"For financials, it's still a difficult situation as we're all trying to decipher the top tier from the bottom tier," said Daniel Morgan, a portfolio manager with Synovus Securities. "You can trade them and make money, but there hasn't been a drastic change in core fundamentals."

Among the fundamental issues highlighted by Morgan were that banks still have "bad loans" on their books and could trade lower if the unemployment rate goes higher. Some of those fears were stoked by the U.S. Labor Department, which said on Thursday initial claims for jobless benefits rose 15,000 to 576,000 in the week ended Aug. 15, the highest level in three weeks.

Still, for one day investors ignored some of those fears, partially helped by rosy comments from recently hired AIG Chief Executive Robert Benmosche. Benmosche told Bloomberg News on Thursday that he would only sell parts of the company "at the right time, at the right price," adding that he believes the firm will be able to pay back the federal government. AIG closed up 5.66, or 21%, at 32.30.

Led by financials, the Standard & Poor's 500 increased 10.91, or 1.09%, to 1007.37, while the Nasdaq Composite gained 19.98, or 1.01%, to 1989.22.

ProShares UltraShort Financials (SKF) has a market capitalization of $755.65 million, with 26.66 million shares outstanding, a 52 week trading range of $28.30 to $303.82 and closed today at $28.34 for a loss of 4.64%.

This trade is extremely risky as SKF is leveraged at a 2:1 ratio to the financial sector and the options are levered to the price movement. So if we get it wrong we will take a financial bath so take great care with it as you can lose the total cost of the trade should it expire worthless.

Your thoughts are of course most welcome.

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Reader Comments (2)

It is a risky play you have there, but I see the logic of it. BTW, SKF is being sued by Shalov Stone Bonner & Rocco LLP for nondisclosure of risks. I owned the etf for about 24 hours. I sold as soon as I heard of the lawsuit. Please note that the Guaranty Bank the 2nd largest bank to be seized so far is one of many to be hit on bank failure Friday. I don't know, six of one and half dozen of another.

August 22, 2009 | Unregistered CommenterDavid

If SKF is an inverse of IYF 2:1, then will any news on SKF really affect its price? I'm new to ETFs and had purchased this at $29.61. With IYF hitting a RSI of 67.6 on Friday, it appears there could be a correction in the Financial sector in the very near future. If there is an overall market correction early September, then this ETF should provide a nice profit, no?

August 23, 2009 | Unregistered CommenterShom

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