2013 has been a solid year for investors, with the S&% 500 up around 12% year to date and records being set along the way. But now I think a correction seems likely, so I’m buying the Proshares Ultrashort S&P 500 (SDS) to reduce market risk.
Without a real correction since November 2012 I’m going to take steps to reduce the market exposure in my client accounts by purchasing the Proshares Ultrashort S&P 500 (SDS) in accounts today. The SDS is double-the inverse of the S&P 500, which theoretically means if the market goes down 10% SDS will go up (around) 20%. I feel we have been long overdue for a correction and the market has been acting like it wants to correct for the past week.
My goal is to protect the client gains we have had this year, but in turn I have to probably give up additional upside if the market goes higher. For instance if the market goes up 5% from here before I sell the SDS, then the position would be losing (around) 10%.
If the transaction proves to be profitable, and the market continues to fall, this will give us more cash to invest in other stocks I wish to buy buy are currently too high. So an ideal situation would be for the market to continue to decline, sell the SDS at a profit, then reinvest the proceeds in stocks on my radar that are down do to the correction.
