I trade occasionally, and I have followed the banking disaster with great interest. The road is littered with folks who have made and lost a fortune on bank stocks this year (mainly lost if you were long). In mid-July, after the Fannie and Freddie "bailout" and the Wells Fargo earnings, fianncials have rallied. I am not an expert of short-selling and short-selling practices, but I understand that at Lehman's insistence the SEC limited the ability of short-sellers to movea gainst the market, which has added fuel to the rally.
A popular way for shorts and longs to play the financials was introduced last year in the form of the Powershares SKF, a two-times levered short tracking stock. The volatility of this thing has been extraordinary. It came out at $71 a share in October, ran to $150 after the Bear collapse, ran back down to $100, then up to over $210 on July 15 which the selloff reached a crescendo. In less than two weeks, as bank stocks have surged, this has retreated all the way to $111.
And the movement is not straightlined. The thing can experience instant moves of more than $1 in a manner at any time.
According to my friends who trade and friends at hedge funds, this thing now represents the best way to move against the banks. I don't know if the bet against the banks is over (as some, including Sam Cass believe) or if this is just a snap-back rally. But, whatever your inclination is, you should be warned that the SKF is not for the faint of heart or the casual trader. It is, in fact, a heart attack waiting to happen.
Related Articles:
Bank of America (BAC) Dividend Analysis by sagitarius84 - Jul 29, 2008.
