Thursday, August 11, 2011

Down, Up, Down, Up - A Shopping List of ETFS and their options for Friday?

Let's see
Monday down, Tuesday up, Wednesday down, Thursday up....hmmm...what's next?

Let me use my binary, asset allocation, forecasting tool to try to predict tomorrow's direction...heads its up, tails its down.

Wait! Better yet I'll use my proprietary,  oscillation, simulation, modeling tool to perform an in-depth pattern analysis ....hang on....calculating.....oh seems to indicate ..... down again.

OK...enough with the attempt at sarcasm/humor.

But...........while no one can be sure what Friday will bring, there is obviously some real probability of a down or weak day on Friday.  Especially since there seems like some chance that fast money may take their money off the table and head to the Hamptons for the weekend (or may this week it is more like the fast European money coming off the table so they can go to the Riviera).  In any event, it seem prudent for an individual investor to have a game plan in the event of Friday market weakness.   Do nothing, move to the sidelines, accumulate?

In the event of a weak day CCI will likely try to accumulate some positions and has created a list of a few potential, conservative, trades using etfs and their options.  A more in depth article describing the rationale for these trades should be posted at Seeking Alpha Articles by CCI in the morning, but in summary they are
  • January at-the money covered calls on the Utility Sector etf (xlu)
  • December $32/$35 risk reversal in the Materials Sector etf (xlb)
  • Aug or Sept $9 naked put selling in the Japanese ETF (ewj) to try to generate some income.

Hopefully the market will rally again on Friday. In that event this list can be put on hold, and an early happy hour can begin.  If the market weakens into the weekend, CCI will try to enter these positions and track them as part of the downgrade portfolio started earlier this week.

No comments:

Post a Comment