bhanacik said:
Quick question for BSG or anyone else looking to short or buy puts on the broad market. It was mentioned recently about buying puts on DIA.
I too agree with the outlook of a broader market pullback and was looking for the best way to act upon that and came upon SPXS, which tries to be 3x the inverse of the S&P. My thought was that this looks to be a good way to further leverage the movement of the index
Does anyone have any experience in buying an inverse fund like SPXS? positives/negatives?
how much trading and investing experience do you have?
If not much, use SH instead. It's more forgiving if you're wrong. I trade UPRO and SPXU, but I enter on confirmation of a technical pattern, I scale out as I go, and when I'm wrong, I GTFO immediately.
Let me do some math to help. I'm going to guess an ATM DIA put a couple months out is probably $20, or $2,000. If DIA rallies from here, worst case, you're out $2,000 if you let it go to max loss. But if you get that big 10% move in the index and you held to expiration, you're going to get a 50% gain and that option will be worth $3,300 or so at expiration, more while there is still premium left. This is not how I would play it. I would do an out of the money put debit spread probably 325/300. It will cost less, probably half as much and you can unload it at any time with a down draft.
If you bought SDOW at $31.5 and you got a 10% move down in the index, this would go to roughly $40 or $10 per share. Your cost would be $3,150 to buy 100 shares to get that same $1,000 profit move. The benefit is no theta decay, but if we ripped 5% up from here, guess what, you're losing 15%. I personally wouldn't hold a ton of SDOW/SPXS/SPXU/SQQQ waiting for a move that may never materialize.
Obviously your strategy may work. I've experienced losses before with a mindset like this.
To buy (or short) the shares for the same move, it would be $33K.
