Saturday, January 31, 2009

Obama Stimulus Package and Made in USA Provisions

Would you kindly take 2 seconds to vote on this poll:

Do you agree that the Obama stimulus package should contain "Made in USA only" provisions?

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Friday, January 30, 2009

Straddle Results for Week of January 26 to January 30

With the wild oscillations in stock prices this week, which was expected, there were several major earnings straddle winners.

The following table looks only at the winning option side:

And this looks at both calls and puts for several strikes of AMZN in particular, which is a favorite play:

(please click to enlarge)

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Thursday, January 29, 2009

Earnings Straddles for January 30

Here are some straddle plays for tomorrow January 30.

You can track the 20-minute delayed prices on this site.

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Wednesday, January 28, 2009

Earnings Straddles for January 29

Here are some interesting straddle plays for January 29.

(click to enlarge)

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Tuesday, January 27, 2009

Earnings Straddle Plays for January 28

Here are some of the most attractive straddle plays for tomorrow January 28.

You can track these live here. Note that, as expected, there have been big moves in some of the underlying stocks on Jan26 and Jan 27. Some stocks move during the day when earnings are released before the markets one. Others moved the following day, for those whose earnings are released after the close.

There are several tabs on top to view each day of the week. Enjoy!

(please click on image to enlarge)

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Monday, January 26, 2009

Straddle Plays for January 27.

Here are straddle plays for earnings tomorrow January 27. Attractive plays are highlighted.

Caterpillar has just reported negative earnings a few minutes ago, it s stock is down in pre-market. These are perfect examples on why it is attractive to play straddles on earnings, regardless of market direction. Some see earnings dates as hazards, some as opportunities!

Move required figures represent maximum (worst case scenario). With weeks till expiration, actual moves required will certainly be lower.

(Please click on image to enlarge)

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Saturday, January 24, 2009

Straddle Plays for January 26

These are some of the straddles plays for companies with earnings on January 26. The table shows prices and computations of maximum move required (based on prices as of EOD, End -Of-Day), Friday January 23). There are some very attractive plays, and companies for all tastes.

This list will be updated daily.

(please click on image to enlarge)

Here's a visualization through gauges. Green is good, yellow is ok, red is risky:

(please click on image to enlarge)

Finally, you can also see this here as a Google spreadsheet which updates the prices automatically with 20 minute delay.

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Thursday, January 22, 2009

Earnings Season: Straddles for the Next Two days

With earnings season just started and big surprises expected daily, straddles and strangles can be quite profitable. An example was Nokia today. A 12-13 strangle bought yesterday, returned +22% profit this morning.

(please click on image to enlarge)

The table below shows some upcoming straddles for the next 2 days:

The move required is the maximum percentage that the underlying stock should move to compensate for the cost of both the call and the put.

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Tuesday, January 20, 2009

A Winning 2X and 3X ETF Long Term Strategy


In theory, investors who buy both the long (bull) and the short (bear) version of leveraged ETFs should make a healthy profit in the long term. This is because of the power of compounding. Imagine a $1,000 investment in both bull and bear ETFs, and a 1% return for each of two days(either +1% both days, or -1% both days). In the case of +1%, each ETF will return +2% or -2% in each day:

Original investment: $1,000.00 + $1,000.00 = $2,000.00

After day one:

  • bull ETF: $1,000+2% = $1,020.00
  • bear ETF: $1,000-2% = $980.00
  • total: $2,000.00

After day two:
  • bull ETF: $1,020+2% = $1,040.00
  • bear ETF: $980-2% = $960.40
  • Total: $2,000.40

After 10 days of this, the total would be $2,031.85, for a healthy return of +1.6%.

After 60 days, this chart shows the total $ amounts there would be in each ETF. At the end of the period there are $3,527.57 in total:

The ROI in this case is +76%. The reason for this is simple, the gains on the winning side are compounded giving higher dollar amounts every day, while the dollar losses on the losing side become smaller and smaller.

This is why it is is important to look at the "paired performance", the performance of both bull and bear ETFs bought as a paired trade, to see what really happens in the long term. The paired performances are reproduced below for all the 2X and 3X ETFs mentioned in our previous post.

Symbol Paired Perf.
HNU+HND 14.30%
HOU + HOD 41.96%
HGU + HGD -65.88%
HEU + HED -44.58%
HBU + HBD -17.40%
HMU + HMD -56.54%
HTU + HTD 5.10%
HJU + HJD -50.03%
HAU + HAD 23.53%
HDU + HDD 4.18%
HQU + HQD 8.20%
HSU + HSD -1.10%
HXU + HXD -4.23%
HFU + HFD -1.58%
SSO + SDS -27.08%
UYG + SKF 13.39%
UWM + TWM -37.42%
DDM + DXD -39.05%
TNA + TZA -30.54%
ERX + ERY -38.63%
FAS + FAZ -37.15%
BGU + BGD -18.43%
DZK + DPK -0.54%
EDC + EDZ -2.16%
TYH + TYP -3.28%
DXO + DTO 255.06%
UCD + CMD -2.10%
UCO + SCO -6.32%
ULE + EUO -0.74%
YCL + YCS 0.00%

In general, what happens in the long term is very poor performance. The vast majority of paired trades is a loser. The only exceptions are the recent oil ETFs because oil has been crashing lately. If history is an example, any long term investors should be very wise to cash out. Leaving money long in these ETFs is a recipe for losses.

Here are some charts that show the returns for an investor who put $10,000.00 in each bull and bear ETF.


(please click on images to enlarge)


We also take a look at the winning DXO-DTO trade. Since this ETFs were created, oil has come crashing hard from $140 to $35 or so, so any bull or long ETF should show very significant gains of roughly 300%.

It will be very interesting to see what will happen once oil starts to recover.


Given the very poor performance of any of these paired trades held for longer term, a winning strategy is to short the paired trade. In this strategy, the investor short sells an equal amount of dollars of both the bull and the bear ETFs.

Below is the one-year performance for shorting paired trades for all ETFs that have been trading for longer than 10 months.

  • 1. Shorting Horizon ETFs: average return of +18.51%

Note that this actually includes the oil and natural gas ETFs.

(-18.51% is the performance if you had gone long)

  • 2. Shorting ProShares ETFs: average return of +22.54%

Note that this includes the financial ETFs, which have also crashed lately.

  • 3. Shorting Direxion ETFs: average return of 31.19%.

Finally, we take a look at the 3X ETFs. These have only been trading for a few months, but every single pair is a big loss:

Therefore the strategy of shorting pair of ETFs has returned, as measured by profit over the initial proceeds of the short sale:

  • Shorting Horizon ETFs: +18.51% (1y)
  • Shorting ProShares ETFs: +22.54% (1y)
  • Shorting Direxion ETFs: +31.19% (3 months)


  • Effects of interest earned with the investment of the shorting funds or of paying dividends is not included.
  • Note: Direxion funds performance is since their inception in November 2008.
  • Past performance is not necessarily an indication of future performance

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Monday, January 19, 2009

List of 2X and 3X Leveraged ETFs on the Market

Here is a partial list of popular leveraged 2X and 3X ETFs on the market that have both bull and bear versions. Sometimes these are also called ultra-long or ultra-short. The list shows the issuers, the specific market, the performance since inception, and the performance of the paired bull and bear versions*.

* The paired performance is useful to see the actual returns of a regular investor with more of a longer time frame. In theory, an investor should make money by buying both long and short ETFs, this however, is not what happens at all.

The list is also available as a Google doc.

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Thursday, January 15, 2009

Performance of Options of 2X and 3X ETFs

There is a proliferation of 2X and 3X ETFs on the market lately. With these there are also associated options. Since a typical option on a regular stock leverages the investment by 100X, do the options on 2X or 3X ETFs represent leverage of 200X or 300X?

We look at the performance of some ETFs this week, particularly Monday January 12.

The following table shows the returns for:

XLF, SKF, UYG (2X financials)


IWM, TNA, TZA (3x small cap Russel 2000)

(please click on image to enlarge)

Some of the individual charts are shown below. The thicker the line, the higher the volume.

Clearly, the performance of the 2X and 3X ETFs is not 200 or 300X. An investor is better off using the 1X underlying, not only for the returns, but also for the much higher volume of traded options.

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Tuesday, January 13, 2009

OECD: Country Composite Leading Indicators, Brazil Only Country Whose Prospects Remain Relatively Stable

The Organization for the Economic Cooperation and Development (OECD) has just released a study about countries economic prospect in 2009.

Brazil is the only country whose prospects remain relatively stable,
being the only country among 34 others analyzed by the study whose Composite Leading Indicator, a measurement of a country's economic activity levels, remains higher than 100 points.

The worst CLIs in November were for China with a reading of 88.5 and Russia 89.8. The best were Brazil with 101.2 and France with 95.9. The US was at 92.2 and Canada at 94.3.

(please click on image to enlarge)

The worst year over year changes were for Russia (-13.8 points) and China (-12.9 points).

Country Composite Leading indicators:

(please click on image to enlarge)

Shaded areas represent growth downswing.

Please see the complete study.

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Thursday, January 8, 2009

ABCP Canadian Saga: Lawyers and Advisors $200M, Investors: 0.M

This blog started about 1.5 years ago at the height of the Canadian Asset-Backed Commercial Paper (ABCP) fiasco, where some mining companies and banks (and private investors) had their funds locked. Many of these were discussed here. I wish this would be a conclusion, but there won't be any until 2016.

After many turns and twists, that issue is still unresolved and that market remains as illiquid as it ever was, and none of those companies has seen their money.

However, there are some winners: according to the Financial Post on Tuesday, the lawyers and financial advisors of the ABCP restructuring. They have billed noteholders $200M in fees (or $199.1M to be exact, until December 16). $87M of this is going to JP Morgan.

The latest plan has some individual holdes getting their money back, while companies and institutions will have to wait until 2016 to get any money. This for investment that was supposed to be short term. Some deal!

Reference: Lawyers and advisors: $200M. Investors: 0.

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Tuesday, January 6, 2009

Sao Paulo Construction

This is the view from an apartment in the central-south zone of Sao Paulo. There is construction everywhere in the city, another 40 high-rises will be built on this particular site shown in the picture. There are bumps ahead, but the economy has diversified itself significantly in recent years. Contrary to their northamerican counterparts, Brazilian banks have not laid off employees (other than due to mergers) and remain conservative and solid.

And here are two more views of Sao Paulo, an absolutely amazing city of over 20M people where you can go hundreds of kilometers underground in new tunnels and bridges, entering in one area of the city and exiting in another.

(please click on images to enlarge)

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Saturday, January 3, 2009

Ethanol and Gasoline Prices in Brazil

In Brazil, the majority of recreational vehicles run on Ethanol. Here are the current prices per liter. 1 R = 0.43USD

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