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Brendan Harper
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  • Leveraged ETFs and covered calls

    Last week I recommended TMV (3x shorting treasuries ETF) when it closed at $80.90, and I had purchased some shares at this price in my IRA. Well, in just one week, TMV jumped nearly 15% and closed at $92.62 on Friday, June 5th. While I have been tempted to just take my profits, this fund has a long way to go. Interest rates and Inflation will both rise in the coming years, and the gains should continue to mount.

    Now, for another strategy that I have been implementing which has worked well involves the very popular ETF FAS. It is a 3x leveraged financial companies etf. Because of the past years volatility of financials, option prices for FAS are very high. For a good example, I will use a position I have in my account. FAS closed Friday at $10.29 and Calls for October @ $10 are trading for $2.90. For those who aren't very familar with options, selling this call would be selling the right for the buyer to buy 100 shares of FAS for $10 each share in October and the income I would receive for selling this option would be $290. A great way to play this is to buy FAS and then sell the covered calls for October with a strike price of $10. If by October, FAS stays above $10, the shares will be taken from you and you received the $10 a share for a total of $1000. You obviously keep the $290 for selling the option and have a gain of over a 25% in just 4 months. If FAS falls below $10, you still own the same shares plus you have received the equivalent of a 25% dividend for selling the calls and can then sell more covered calls against it.

    To make it a little clearer, lets say we buy 1000 shares of FAS at $10.29 for a total of $10,290, and then we sold 10 calls at $2.90, we would receive $2,900. Therefore, our total cost to have this position would only be $7390. If FAS is above $10 until October, our options would be assigned and we would receive $10,000 for a total profit of $2710, or 26.3%.

    Now, lets say FAS loses over 20% and falls all the way to $8 a share, we would still have turned a profit of just below 7% which is a solid return for a 4 month period.

    As with TMV, I will continue to monitor the performance of this recommendation and show how this works out.

    Tags: FAS, TMV
    Jun 06 3:02 PM | Link | Comment!
  • My first post ... Short Treasuries

    Since I work for a discount brokerage firm, I am very limited in the advice I can give. I've decided to start this so when I do eventually work as an full service broker or financial advisor, prospective clients can see a history of stocks I pick.

    It is frustrating working as a broker at a discount firm and watching very nice people throw money away. I cannot tell you how many calls in the past few weeks I have got from people looking to buy GM. Why anybody would buy this stock is beyond me. This company is going bankrupt. This has been the inevitable for weeks, but still the phones ring off the hook of people buying GM. Even now that Bloomberg has reported GM will declare banktruptcy, the stock is trading at $0.80. This is stock should be trading for pennys. The recent 8-K filing doesn't even mention current stockholders when talking about who will own a part of the New GM when it forms.

    Now for something that is a must buy. TMV is an etf by Direxion that is guaranteed to increase in value, and with a recent pullback on friday May 29th, it is a great time to jump in for $80 a share. This new fund allows investors to go three times short on 30-year Treasury bonds, which is essentially making a bet on interest rates. For those who don't quite understand this, shorting treasuries means the fund TMV will increase in value when the price of bonds fall which happens when interest rates are raised.

    As the recession eases, the Fed will be forced to eventually increase rates to combat inflation. Fed Rates may not be this low again for the next 20 years. It is not a matter of if they will raise rates, but when. Throw in the fact that the US is facing an astronomical budget deficit and borriwng at record paces, it's also possible US debt will lose its AAA rating within the next 5 years.

    Most stocks I pick I will not be as bold and say this stock/fund is a can't miss, because a lot of things can happen in this crazy market, but the Fed can't reduce rates any lower. TMV is a sure thing.

    Tags: TMV
    May 30 12:46 PM | Link | Comment!
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