2010: a brand new year where anything can happen with the markets. Will they continue to be pumped up, or will the next sovereign debt crisis cause a crash? Will Japan's financial situation finally cause them to declare a default - or devalue their currency? Or will this happen in Spain, Greece, Hungary, or Ireland? It is an extremely dangerous world at the moment. Something will happen, what it will be, it is likely something nobody expects.
The Shocked Investor does not make market projections, instead, we love compiling data andf using straddles to figure out where the best odds are. Below are mid year straddles and strangles that allow an investor to profit whether the markets go up or down - as long as they move. These are for June, July or August 2010.
The straddles were computed with our StraddlesCalc tool, which shows the number of calls and puts to buy for a $1,000 investment on each straddle branch (you can use any $ amount). The tool also shows what the maximum move needed to profitability is. Because there are 6 or more months to expiry, the actual move needed may be far smaller as there will be residual value left on the wrong side of the straddle.
1. General Stocks and Financials: IWM, SPY, XLF
Our favorite is always IWM, for liquidity and speed of execution. Will it move 16% in 6 months?
2. Gold and Miners: GLD, AUY, GG
If you believe gold will move by 15% in 6 months versus the US dollar then those are for you. You can clearly see the leverage and implied volatility on the miners too and their options are a lot pricier.
We track miners ETFs live here.
3. U.S. Dollar, currencies (Brazil, Australian dollar, Yen)
Will the US dllar carsh for good, or will it receover, bring the markets up? Only around 7% move is needed for the Yen, Aussie dollar and UUP, and 15% for the Real. It is an election year in Brazil, expect volatility.
We track all currency ETFs live here:
(please click to enlarge)
4. Global markets (Brazil, Russia, Japan, China)
A 20% move in Brazil (in USD)? Remember that the 2009 move was 110%! (we track them live a here):
5. Oil and natural gas
It is hard to find an easier loser than UNG. Where else can you get an EF that loses 15-20% every month by doing nothing? (well, sure, there is always FAS and FAZ). Anyway, will the price of natural gas recover enough to compensate for the dreadful contango?
We track oil ETFs as well.
Speaking of FAS, some people still choose to lose their money on this and other leveraged ETFs. We track the losses on FAS and FAZ with our FAZ-FAS Loss-O-Meter. Here are July strangles. If the markets to down or simply oscillate, these could be great winners.
The mindboggling losses on FAZ + FAS as of Dec 31:
Note: You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).
This is not advice. Please do your own due diligence. Options are dangerous and may cause 100% loss.