August Positions Initiated
| Ares Trading | |||||||
| August 2008 Open Positions Unrealized Profit/Loss | |||||||
| Total Invested: | $873 | ||||||
| Total Return: | $896 | ||||||
| Unrealized Profit: | $23 | ||||||
| Unrealized Profit %: | 2.63% | ||||||
| Total Positions: | 5 | ||||||
| Average Days Held: | |||||||
| Date | Qty | Company | Contract | Strike | Expiration | Price | Cost Basis |
| 7/25/2008 | 1 | DBC | Call | 40 | August 08 | $1.50 | $150 |
| 7/25/2008 | 1 | DBC | Call | 40 | August 08 | $1.50 | $150 |
| Days | 0 | Profit % | 0.00% | Profit | $0 | ||
| 7/25/2008 | 1 | DIA | Put | 113 | August 08 | $2.04 | $204 |
| 7/25/2008 | 1 | DIA | Put | 113 | August 08 | $2.12 | $212 |
| Days | 0 | Profit % | 3.68% | Profit | $8 | ||
| 7/25/2008 | 5 | F | Put | 45 | August 08 | $0.34 | $170 |
| 7/25/2008 | 5 | F | Put | 45 | August 08 | $0.35 | $173 |
| Days | 0 | Profit % | 1.47% | Profit | $3 | ||
| 7/25/2008 | 1 | QQQQ | Call | 44 | August 08 | $1.72 | $172 |
| 7/25/2008 | 1 | QQQQ | Call | 44 | August 08 | $1.88 | $188 |
| Days | 0 | Profit % | 9.30% | Profit | $16 | ||
| 7/25/2008 | 1 | XLF | Call | 20 | August 08 | $1.77 | $177 |
| 7/25/2008 | 1 | XLF | Call | 20 | August 08 | $1.74 | $174 |
| Days | 0 | Profit % | -1.69% | Profit | ($3) | ||
There is an inverse correlation between the Dow Jones Industrial Average (measured by the DIA Diamonds ETF) and the DBC (Commodities Tracker ETF). This is a logical relationship since when oil costs are high, the market, in particular, industrials do poor. Thus, when oil prices rise, gold, and other commodities will rise, all part of the DBC ETF. In response to higher oil and commodity prices, the Dow Jones index will suffer, as the market will turn bearish on stocks.
Ares Trading believes the recent upswing in the Dow Jones average will be corrected as oil returns to above $135 a barrel. Consequently, Ares Trading has bought naked calls on the DBC Commodity Index ETF and naked puts on the Dow Jones Industrial Average (DIA ETF).
Ford Motor is having a tough year. Rising fuel costs have ended the “Big-Vehicle Era”, and Ford is having a hard time adjusting. Ares Trading believes the recent rally is a perfect opportunity to be bearish on Ford. Thus, naked put contracts, at $5 strike, have been purchased for August expiration. Ares Trading believes Ford will retest $4.5 lows set early in July.
Technology is a safe bet right now. In the recent rally, Financials have been the only sector to experience a large upswing. However, during the sell-off all sectors were hit very hard, especially technology. This has created unusual valuations for many strong technical companies, many of them being underbought. Ares Trading believe there is strong upside risk for Tech, and thus bought naked calls on QQQQ (Nasdaq Index ETF).
The final position Ares Trading initiated today was in XLF. This is a contrarian position and is being used as a hedge against the QQQQ and DBC position. Ares Trading believes that if Financials are to perform well, then Commodities (DBC) and Technology (QQQQ) will suffer. Why? This is because any positive news will provide enough for a large upside swing for Financials. This will cause market makers to sell off Commodities and Tech, in order to switch assets into Financials. In addition, Ares Trading believes that Financials have been highly oversold. Although fundamentals problems exist, they will continue to exist until 2010, and there is no way to predict a bottom for Financials.
If there is any movement in Financials, it will be dramatic and thus Ares Trading believes the upside risk outweighs the downside risk. Using naked calls on XLF (Financial Sector ETF), Ares Trading is betting on a dramatic momentum shift before the third week of August, similar to the recent market rally.
