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TGIF – Closing a 12% Down Quarter

Posted on the 30 September 2011 by Phil's Stock World @philstockworld

1,160 – That was the S&P close after yesterday’s wild action.  A neat 160-point drop (12%) in 3 months for the World’s largest market kind of sucks, don’t you think?  My commentary in June 30th’s "It’s the End of the Quarter as We Know It" post was:

We feel fine because we cashed out on the long side (shorter-term, unhedged positions) and we really don’t care what the market does today or tomorrow but we are betting this rally reverses and we will be taking some (more) short hedges today – hopefully selling into the last legs of this fairly fake-looking rally.  

My top downside picks to play the sell-off were EDZ ($17.90 at the time, now $28, which is up 36% even without using options to make a spread) and TZA ($35.50 at the time, now $51.10 – up 44%).  As I said in the morning post: " I didn’t think they could take the Dollar below 75 but they hit 74.54 last night and it remains to be seen if they can hold it down in real trading, especially with the Pound weakness (see this morning’s Alert) and the Yen’s unwanted strength.  Something’s gotta give and we’re betting it’s this fake, Fake, FAKE rally…."

We were shorting oil futures (/CL) at $95 (now $80, up $15,000 per contract) as we thought the holiday weekend was the end of the run but we did keep heading up to $100 (down $5,000 per contract) before finally getting a drop to $75 (up $25,000 per contract) in early August.  

One funny play from that June 30th Member Chat was the VIX Aug $15/17 bull call spread at $1.20, selling the $16 puts for .50 for net .70 on the $2 spread.  That just seems so cute (and obvious) with the VIX at 38.84 now (it was 30 at the end of Aug for a full 185% gain on that hedge).  

TGIF – Closing a 12% Down QuarterOther hedges we liked in that post were the TZA Oct $31/42 bull call spread at $3, selling RUT Aug $710 puts for $2.90.  The RUT puts expired worthless so net .10 on the spread that is currently $20 in the money for pretty much the full 10,900% gain.  EDZ was another October spread



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