Consider FAZ Options for Quick Profits

 | May 16, 2012 | 11:30 AM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

XLF

,

FAZ

,

FAS

Inverse ETFs are a great way to gain leverage if you are trying to achieve an excess return that runs counter to the market or just trying to hedge a portfolio. The double and triple leverage can really give you some juice. But how about the options?

Most ETFs offer option plays, and as you can imagine, the double and triples are like playing volatility on steroids. I am very choosy as to which one I would like to play, but the one I have had the most success with is the Direxion Daily Financial Bear 3X Shares (FAZ), the triple financial bearish fund.

I will use the FAZ as a means to make profits and take advantage of short-term volatility. FAZ will move about 3x the opposite of the Financial Select Sector SPDR (XLF) (the bullish side is the Direxion Daily Financial Bull 3X Shares (FAS), which is the triple financial bullish fund).

I have found recognizable patterns in the FAZ that make for some very profitable trading. However, if you venture into this type of trade, you have to define your risk. Options do this for you. Also, you would need to withstand some volatility and be willing to accept losing a large amount of your investment, if not all of it. When the FAZ is ramping, that is when I want to play it. When it is falling and has lost momentum, I'll stay away.

The charts below show what I'm looking for from a daily and intraday standpoint. I don't hold the option for very long -- at most a few days, and sometimes for a day trade. When the momentum is strong, there is no denying the FAZ.

FAZ Daily
StockCharts.com
FAZ Intraday
StockCharts.com

For the present, it appears to be gearing up for a big consistent move. Now, headline news is the wild-card factor, and anything positive with financials can drop the FAZ's momentum in a New York minute.

We have had some pretty decent success with this vehicle, as the FAZ was the key to getting the upper hand during a very rough period. We posted these trades and ideas on the Real Money's Columnist Conversation last September, when we crushed it for a massive triple-digit win not once but twice. Caution is always warranted, but these vehicles offer some great trading profits if timed correctly.  

Mind you, I will buy this for a short-term trade. This is nothing that I want to stay in for any considerable amount of time.

Columnist Conversations

Oil giant Exxon Mobil (XOM) was being dumped last Friday as fears of Russian sanctions were featured in the WS...
WYNN has violated the first key support decision on the weekly chart, but is still holding above the second. I...
The 10yr note, while lower in yield today (currently 2.56%), has seen a 16bp move higher over the past 10 trad...
Interesting rally in the market at midday after yesterday's flood of money away from "risk on"/high beta secto...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.