Inverse ETFs Having a Good Week

We’re having a good week with our inverse ETF positions and SPY put option gaining ground.

Top performers in our portolios are VXX gaining +30.6%, EEV up +17.8% ( both in unrealized gains) and we closed PSQ yesterday for a realized gain of +7.7% and the December SPY put option yesterday for a realized gain of +10.2%.

Overall year to date, the Standard Portfolio is up +5.8%, Option Master is up +10.2% and the 2X portfolio is the laggard, down -4.9%.

Yesterday’s action was driven by the situation in Europe and by technical factors which we’ve been discussing for some time.

The market was hugely overbought and in one day went to hugely oversold.

Fundamentally, we are looking at what could become a major global meltdown and financial catastrophe with the destruction of the eurozone, starting with Greece and moving on to Portugal, Spain and even Germany and the United Kingdom.

The European Central Bank and Angela Merkel have made it pretty clear, I think, that there will be no more bailouts of the PIIGS (Porugal, Ireland, Italy, Greece, Spain) and that they won’t be buying back their bonds to prop up the euro/dollar at the expense of the German economy. (ala the more than one trillion dollars that the Federal Reserve has pumped into the American banking system and economy over the last two years)

If this is correct, the only possible outcome is the eventual default of these countries that could morph into a huge hit on many major banks and potentially an international banking crisis.

As I said earlier in the week, just think Bear Sterns and Lehman Brothers (LEHMQ.PK) on a global scale.

This situation will play out over a matter of weeks and months, not minutes, hours or days, and we can expect much more volatility and uncertainty ahead.

However, current dangers also offer unusual opportunities, and with the right strategy and tactics, enormous profit potential lies ahead.

I would expect something of a rebound today, Friday and possibly into Monday if the German Parliament approves the Greek bailout and the U.S. employment report is positive.

After that, all eyes will turn to the Greek bond rollover on May 19th and then into June and July when Spain comes up to bat and we enter a new round of mortgage interest rate resets equaling 2008’s that triggered the sub prime meltdown.

So, enormous dangers are always accompanied by enormous opportunities and our challenge is to end up on the right side of the trade.

Disclosure: SLV, VXX, EEV, AGQ