Take Advantage of the ‘Scandal Bid’ with SSO

Leveraged ETFs like SSO can make scandalous moves--so make sure you keep a tight rein on this trade

   

Last night I had a conversation with a friend who asked me, “With all of the scandals going on in Washington right now, why is the stock market still making new highs?” It’s a good question that I suspect is on the minds of many these days, and the short answer actually is quite easy.

Scandals in D.C. mean gridlock, and Wall Street loves gridlock.

You see, the less focused those at the helm of the federal government, i.e. Congress and the president, are on implementing more laws, the more Wall Street can forget about dealing with the burden of more laws and new regulations. Another way to put this is that the more those in charge are forced to deal with damage control due to scandals such as the IRS’s targeting of conservative groups and the debacle in Benghazi, the less likely lawmakers and the president are to, as the popular saying goes, “get things done.”

The notion that Washington won’t be as big a factor in the economy going forward, at least in the short term, thanks to gridlock over scandals is something friends of mine on the NYSE trading floor have told me repeatedly over the past few days. In fact, one trader friend of mine actually called it, “the scandal bid on stocks.”

5 17 13 sso 286x300 Take Advantage of the ‘Scandal Bid’ with SSOFor individual investors looking to piggyback on this scandal bid for some short-term profits, I suggest taking a look at a leveraged exchange-traded fund (ETF) that’s designed to deliver twice the daily performance of the S&P 500 Index.

That fund is the ProShares Ultra S&P 500 (SSO).

David Fabian, Managing Partner at Fabian Capital Management, an investment advisory firm that specializes in ETFs, thinks that SSO is a good choice for aggressive traders who think the market is going higher from here. “This fund [SSO] trades a lot of volume, and is very liquid. That makes it easy to get in and out of the trade as soon as you choose,” said Fabian.

Hey, with the Fed pumping money into the markets and creating a bid on stocks, and now with the “scandal bid” helping fuel this already robust rally higher, now is the time to take a shot on leveraged long side with a short-term trade in SSO.

A buy in here at the market will, I suspect, net you a 10-15% gain over the next month or so. However, because leveraged funds can fall very fast, make sure you place a stop-loss order in along with your buy order at approximately 8-10% below your buy price.

 

At the time of publication, Jim Woods did not hold a position in any of the stocks mentioned here.


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