Tuesday, June 1, 2010

Purchase ProShares Short S&P 500 ETF

As described in an earlier post today, the Overall Market Meter now reflects the Covered Calls Advisor's change to a Bearish sentiment. The investing strategy corresponding to this outlook is to be 50% long with, on average, 1% in-the-money covered calls; and 50% short with, on average, 2% out-of-the-money covered calls for the near-month expiration. To accomplish this, three steps were implemented today as follows:
1. Sell approximately half of the total market value of the existing Covered Calls Advisor Portfolio (CCAP) to free up sufficient cash to subsequently establish a 50% short position.
2. Establish Jun2010 covered calls positions against the remaining 50% long positions in the CCAP.
3. Purchase a 50% short position with the available cash.

The first two steps above were described in detail on the prior two posts on this blog today. The third step is the subject of this blog post. To establish an underlying short position, the ProShares Short S&P 500 ETF (symbol SH) was selected. This is an inverse ETF and as such moves 1:1 in the opposite direction to that of the S&P 500 Index (symbol SPY). So if SPY were to decline by 1.0%, then SH would increase by approximately 1.0% during the same time frame.

Today, the following position was established:
06/01/2010 Bought 2,400 shares of ProShares Short S&P 500 ETF @ $52.76.
This position is now shown in the Current Covered Calls Advisor Portfolio listing in the right sidebar of this blog site. In addition, an attempt was made today to establish a covered calls position against this SH purchase by placing a day limit order to sell 24 SH Jun2010 $54.00 Calls at $1.10. However, this order did not execute and these options were priced at $1.00 bid/$1.25 ask upon the market's close.

Your comments or questions regarding this post are welcomed. Please click on the "comments" link below or email me at the address shown in the upper-right sidebar.

Regards to All,
Jeff

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