Well, we can't say this was unexpected.
As I noted in yesterday's post, we didn't think much of the Spanish bailout and began shorting the Futures Sunday night. Amazingly, we still opened well above Friday's close and that gave us a great opportunity to cash out our longs and flip bearish. My comment in the Morning Alert to Members was:
As I mentioned above – this was a nice pop and shame on you for not taking bullish profits and running back to cash and we can wait patiently for the next obvious entry on whichever side we end up on.
AAPL is over our expected $580 target off our $555 entry so GREED not to take that and run at $586. They have their conference today and great expectations are always a good time to get out – see my note on AAPL at the end of Friday's chat.
Cash, cash, cash, cash is the way to play this mess. If they Dollar doesn't stay below 82.25 then there's nothing to be bullish about this morning as it means the Euro is going weak again just hours after a huge bailout – which makes perfect sense from a macro standpoint because $125Bn does nothing at all for Italy, Greece or anyone else or, as I said above – band-aids on bullet holes is all we have and the blood keeps flowing….
Our bearish play for the morning was TZA at $20.70, selling the July $19 puts for $1.25 and buying the $20/25 bull call spread for $1.30 for net .05 on the $5 spread. TZA popped up to $22.30 at the end of the day (up 7.7%) and the puts fell to .80 while the $20/25 spread finished the day at $1.80 for net $1 – a 1,900% gain on cash in a single day.
In practical terms buying 50 of the spreads would have cost $250 and netted $5,000 but keep in mind you create an obligation to buy 5,000 shares of TZA for net $19.05 ($95,250) and the margin requirement is roughly $12,000. This is why we like to be mainly in CASH in a choppy market. Having spare margin on the sidelines let's…