I have been a utilities bear off and on, and just a couple of days ago, I mentioned how I was getting back into SDP in a big way. Never again. Let me explain why.
In the past, when people would talk about how market makers would "gun for their stops", I would take these as simply rantings of a person who didn't want to take responsibility for his own mistakes. But, in some cases, there really is truth to this.
SDP (which is a double inverse based on the Dow Jones Utilities Index) is quite thinly traded. FAS, for example, was only introduced last November, and it already trades about 50-80 million shares per day. SDP, on the other hand, trades maybe fifty thousand shares a day.
So this morning, not long after the open, I found myself completely stopped out of two large SDP positions. I was puzzled, since the market wasn't moving that dramatically. So I took a look at the graph. Note the highlighted portion:
01
Yep! That's my trade! Nearly 10% below the "normal" trading of the day.
So I got taken. From now on, if I want to do anything with utilities, I'm going to stock with other instruments, like XLU. Good-bye, and good-riddance, SDP. I've had enough.
