Saturday, December 20, 2008

Inverse (Short) ETF Portfolio Update - 12/20/08

The stock market is definitely strange nowadays, with little reaction to major events such as the Madoff $50 billion investment scam, the auto bailout bill failure, and subsequent TARP bailout of GM and Chrysler. Hopefully, the lack of volatility is an indication that a rally is beginning...

To hedge against the market falling, I have small positions of Ultrashort Real Estate Proshares (SRS), Ultrashort Financial Proshares (SKF) and Ultrashort Oil & Gas Proshares (DUG). These are inverse market index ETFs, meaning they rise when the market falls and vice versa. Last week, I added 20 more shares of Ultrashort Real Estate Proshares (SRS) to our trading account.

Hedging in a Volatile Market
Inverse ETF [purchase date]SharesPurchase Price

Price on 12/19/08

Ultrashort Oil & Gas Proshares (DUG). [11/21/08]100



Ultrashort Financial Proshares (SKF)



Ultrashort Real Estate Proshares (SRS) [12/11/08]20



Ultrashort Real Estate Proshares (SRS) [12/17/08]20



At this point, it appears the market will be flat to slightly positive in the short term. Personally, I wouldn't mind a year end rally, even if it means losses for these inverse ETFs. However, if the market falls instead, I will have some protection through these ultrashort ETFs.

Disclosure: At the time of publication, I own shares of the Ultrashort Real Estate Proshares (SRS) , Ultrashort Financial Proshares (SKF), and Ultrashort Oil & Gas Proshares (DUG).

For more on Reflections and Musings , check back every Saturday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC


Anonymous said...

Oil has dropped a lot. Do you expect a further decline? Are you going to keep yout short in play?

Super Saver said...

@ Mark,

I think that oil may go lower in the next year, before rebounding. However, DUG won't necessarily rise since it is based on an index of companies in the oil & gas industry.

At this point, I plan to keep DUG and sell significantly out of the money covered calls since the option premiums are very high. If DUG doesn't rise,at least, I will make some money from the option premiums.