Friday, March 14, 2008

A Low Risk, Risky S&P Trade

I bought 300 shares of SSO at $62.23. SSO is 2X long the S&P 500.

You may be wondering why I would go long an index in a downtrend, which I rarely do. The answer is quite simple. I am getting a low risk entry on a risky trade. Huh?

What I mean by low risk entry is I have an edge and an easy place to put my stop.

The edge is a postive divergence in both RSI and OBV. Both are signicantly higher now than they were at the preceding January low which we are currently hitting.

The stop can be placed just under the low. I am going to place mine somewhere in the $59-60 range. That caps my potential loss at about 4 percent and around $750.

So while the action itself is risky--picking a bottom or bounce in a downtrending index--the trade is not. It's the defination of low risk.



Important Update: Thanks to a reader with info on DCR, I exited 500 shares at $9.18 (entry at $8.64) for a $270 gain (+6.25). It's a bit complicated to write up here, but I do not feel it is a good way to short oil.

2 comments:

tt said...

You bought SSO on 3/4 and never discussed closing it. ???

The Market Speculator said...

I have not closed it. My stop is below the January lows.