Thursday, February 26, 2009

UCO Straddles: Proof of Concept

The UCO 5-7.50 and 6-6- straddles I have been posting are already profitable today, in spite of the move having been only a fraction of the maximum move required. As discussed, this is because there are still many days to options expiration (see our new gadget on the top right corner).

The March 6 calls are worth $2+ (bought for $0.90), the March 7.50 calls are trading for $1 (bought for $0.40-$0.50). The March 6 puts still worth $0.20.

And UCO is still rising.

This is from late February:

More straddles will be uploaded later.

Readers know my position on 2X and 3X ETFs. I recommend nobody should buy UCO straight. Use straddles, beat them at their own game.

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Michael said...


Looking at my ledger:
4 2.45 4.30 1,720.00 740.00/

PUT -100 TBT MAR@44
5 2.05 0.75 375.00 -650.00/

The bid on the put is .65 so it is a wash at this point. The risk here is that TLT rises, no?

I was shocked today to see the long bond sell off at the same time as the broader market. Not a good sign! Where is the money going?

Can you explain a bit further about the YHOO 14-12, 16.5%? That is a bond. It is the 14-12 I'm confused about.


P.S. You operating out of hogtown?

The Shocked Investor said...

Hi Michael,

TLT moved quite a bit today. Yes, you just need another day with a move on the same direction and maybe you can get out already. If TLT rises it moves you backwards. It has been difficult on the broad market because one day it's up, the next it's down. That's why I think commodities or special situations (YHOO, maybe TLT) may be better suited for straddles lately.

TLT has stopped acting rationally. In fact, many things have, that's why straddles are so good, you just don't care, as long as it moves.

The play on Yahoo was a 12-14 strangle, as Yahoo is trading at $13 on the MSFT rumours. Lots of time for this.

Sorry, I don't know what you mean by hogtown.

The Shocked Investor said...
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