$Direxion Daily Utilities Bull 3X Shares (UTSL.US)$ my post ...
$Direxion Daily Utilities Bull 3X Shares (UTSL.US)$ my post here tend to be less and less because we're approaching the Target price that I originally anticipated last year at a much more rapid rate. and the acceleration of the appreciation of the utilities is not just because of the anticipation of further rate cuts but rather they have become an AI play and a growth story rather than just a dividend investment.
$44-46 is where I see this basket peaking. I understand there's all the enthusiasm on the street that utility companies now are going to be making a significant Capital investments to provide the energy to the data centers expected demand and growth rate over the next 5 to 10 years.
they can offer debt offer bonds for sale and they would need to pay a higher rate than treasury's obviously this will take away short-term profit margins because they're paying out more cash.
they can offer a series of preferred stock which would offer a dividend at a higher rate than their class a common stock and this would take away from profits.
or they could offer common stock for sale slightly below the market to institutional investors which is dilutive to shareholders.
and then lastly as they can raise their rates to their customers at a higher than prevailing rate and continue to accelerate it at a much more aggressive rate which on the short-term is good for the stock because I'll be making more money but pisses off customers and causes a whole slew of lawsuits from the state AG against the utility companies.
and no one's talking about this
additionally there's enormous regulatory hurdles at the local level for approval for building additional power plants and then there is a Time Factor too.
it is for these reasons that I feel once we hit right around $44-46 that it is time to take profits in this basket.
whether you choose to sell or plan b
cell covered calls slightly out of the money against your holding and you'll collect that premium and do it every two weeks or whatever time permitting and if the basket begins to roll over you're still able to generate extra income by selling these calls and I'll turn it away if it gets called away so be it.
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10baggerbamm OP : as a follow-up I just want to show you what you potentially can get by selling covered calls and you would be able to do this with this ETF twice a month.
so this ETF is priced out at about $41 a share if you sell in October 18th 42 call the spread is quite large so you should be able to place a limit order at a 1.0-1.25 the spread and get filled. so every contract is 100 shares 10 contracts is a thousand shares so make sure you sell the appropriate amount relative to your position.
let's suppose you're able to do this twice a month and you're able to capture at least a dollar each time.
you've made $2 a month if you're able to do this strategically where you're raising the price of the calls you are selling high enough that you're not going to be getting called away and there is a risk to that obviously
in 3 months you've made $6 that's a significant percent relative to the price of the underlying ETF basket.
so if you choose to hold this basket it's your decision it's your money after all. there will become a point where the basket stops appreciating and begins to trade flat and then gradually roll over. I'm sure you've observed this first hand with many stocks and that is your cautionary warning that you need to exit stage left.
Fat ginger cat : still got chance to touch 44?
10baggerbamm OP : the two factors that are affecting it now number one you have the 10-year treasury that has skyrocketed in yield relative to where it started from it's over 4% and anytime yields go up investments that are dividend come down so that is probably 50% of the reason for yesterday's sell off and the day before's Friday. I think it will get there it's going to take another cycle we're going to have to see the 10-year come down right now it's in an upward trend so we could see a dollar more downside on this basket potentially so it while you're waiting for the next cycle you can sell calls covered against your position in round lots for a short period of time don't go out more than a week. so potentially you have to sell for the 18th of October because they only do two options for every month. so you could sell like a 41 contract for next Friday's the 18th expiration..
all of the utilities on the short-term are technically overbought especially on a weekly chart it's scary how far above the moving averages they are but this is because everyone and their mother is buying into the utilities number one for yield number two because they represented data center play. this may be a pause it may last 2 weeks 3 weeks I don't know because it really is dependent upon the 10 year so we need to see the 10-year treasury roll back over under three and then the upward trend continues.
10baggerbamm OP : this is the weekly chart and you can see what a long way down they can go to touch the moving average.