you own 100 shares of SPY with an average cost of $100 (held over 1 year) You own 100 shares of DDM with an average cost of $28. (held under 1 year) You have $3k cash in your trading account. What would you do? Sell everything and start buying SSO with a small position and average down if it continues to drop? Otherwise you're looking at years before your SPY is back up to break even.?
Paul Tudor Jones had (or has) a sign on his desk saying losers average losers. What you are proposing is to not only average down on a loser but to add leverage on that loser. Its like playing blackjack and every hand you lose you double your bet, eventually you have to win, but do you have enough money to wait? 5yr
Forget about where your position used to be, what your average price is, where you think it 'should be', etc. It's worth what it's trading at right now. The market doesn't care what you paid for it. Mark your positions to the market every day, don't focus on getting back to break even. Remember that hope is not a viable strategy. "It's not a loss until you sell" is the motto of Loserville.
i'm proposing averaging down on the S&P, which cannot go to zero (if it does we're screwed and I have bigger things to worry about than losing a $10k portfolio). It's not like I'm averaging down on Enron.
i would tend to agree with what lescor wrote. however, if you don't need the cash for 2-3 years, averaging down on the SPY is not as bad as averaging down on a stock or ETF. having said that....if i were in your situation and it was all the money i had, i'd pull it out.
The others have given sound advice. Just a quick warning: DO NOT leverage into SSO. It cannot be viewed as a long-term instrument. Due to the derivatives, slippage, and other factors, it will likely not correlate as closely to the SPY as you think. All the best. AZD
If you have good experience with options, which it doesn't sound like you do, but if you do, you could sell small amounts of options against your position to generate profit over time, thus lowering your breakeven price on your positions. If you don't have experience with options, do NOT, do NOT NOT NOT NOT even think about this, in fact destroy any evidence of this idea in your mind. If you can afford to let the money stay in the account, in these positions, you might as well turn this thing into your IRA.
Here's how you get your money back... Liquidate your equity account.. move it all to forex and sit and wait.... When the usd starts turning over buy the aud/usd pair. You should be able to do about 100,000 safely but watch it like a hawk and use appropriate risk management. by end of year you will have 20,000. While your waiting you can take some option risk close to expiration. For instance LDK is reporting horrible earnings next week, pickup about 40 5call options now for .50 and then pocket $2 each next week ;-) i am not an investment professional, use your own judgement
This is easy. You should do what you had originally planned to do (before you implemented the trade) in the event that a large bear market occurred.