How To Trade the CNBC Million Dollar Portfolio Challenge (Part 1)

What would you do if you had a million dollars?  Would you buy something?  Invest it?  Give it away?  All aspiring millionaires can register to try
their hand at managing a $1 million “CNBC Bucks” stock & currency portfolio for the chance to win the grand prize of $1 million in CNBC’s fourth annual
“Million Dollar Portfolio Challenge” (http://milliondollar.cnbc.com).

So how would you set up a portfolio to compete?  Here are some suggestions on what to look for in constructing your CNBC Million Dollar Portfolio.

  1. Obviously, your first focus should be investments that will move in price.  You want to stay away from investments such as utilities or large cap ETFs.  You want to focus on more risky investments that have more potential for price movement.
  2. You should set up all 5 portfolios with different strategies and different holdings to increase your chances of having one portfolio producing stellar returns to be in prize contention.
  3. Even if a portfolio is producing less than desirable returns, do not give up on it as it can still win you a weekly prize as the market changes direction or your investments moves in the right direction.

The markets are very volatile with the VIX being in the upper 30’s.  This is due to the constant uncertainity in Europe regarding country defaults and the uncertainty of a slowing U.S. economy.  This creates a great trading environment as the markets will change direction on a frequent basis.  So you want to have the volatility on your side to increase the amount of price movement to be captured for profits.

I like to trade this type of market using pair trading with a slight adjustment.  First, you can’t trade options or shart any investments in the CNBC Portfolio Challenge.  Therefore, I am trading ETFs that have more leverage for more price movement.  You can also use the ETFs that have shorts built into them to profit from market declines.  I have several of these types of trades that I will share over the coming days in different blog post.

The trade for today is to capture profits from the overall market.  I am using two ETFs that track the S&P 500 but are levered to return twice (200%) of the daily performance.  The first ETF is Proshares Ultra S&P 500 (SSO) that is used to capture the UPSIDE movements of the S&P 500.  The pair of this trade is the Proshare UltraShort S&P 500 (SDS) that is used to capture the DOWNSIDE movement of the S&P 500 at twice (200%) of the daily performance.  There product description is listed below.

ProShares Ultra S&P500 (SSO), formerly Ultra S&P500 ProShares, seeks daily investment results that correspond to twice (200%) the daily performance of the S&P 500 Index. The S&P 500 Index is a measure of large-cap United States stock market performance. It is a float-adjusted market capitalization weighted index of 500 United States operating companies and real estate investment trusts (REITs) selected by the S&P U.S. Index Committee through a non-mechanical process that factors criteria, such as liquidity, price, market capitalization and financial viability. The S&P 500 Index is a price return index. Reconstitution occurs both on a quarterly and ongoing basis. The Fund takes positions in securities and/or financial instruments that, in combination, should have similar daily return characteristics as 200% of the daily return of the S&P 500 Index.

ProShares UltraShort S&P500 (SDS) seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite)
of the daily performance of the S&P 500 Index. The S&P 500 Index is a measure of large-cap United States stock market performance. It is a float-adjusted market capitalization weighted index of 500 United States operating companies and real estate investment trusts (REITs) selected through a process that factors criteria, such as liquidity, price, market capitalization and financial viability. The Fund invests in various sectors, such as consumer, non-cyclical, financial, technology, communications, energy, industrial, consumer, cyclical, utilities and basic materials. The Fund’s investment advisor is ProShare Advisors LLC.

The trade is to determine WHICH ETF, SSO or SDS, to be invested in to capture the S&P movement.  You should not be invested in both ETFs but only one based on technicals.  You can chart each ETF to look at technical indicators such as Stochastics, MACD, RSI, etc.  You then invest in the one ETF that is moving in the same direction of the S&P 500.  You will buy SSO when the S&P 500 is moving up (INCREASING) in price and buy SDS when the S&P 500 is moving down (DECREASING) in price.

You will have success by switching in and out of these two ETFS based on the direction of the S&P 500.  The technical indicators will alert you to which ETFs to be invested in at the current time in the market.

This is one investing strategy to utilize in the CNBC Million Dollar Portfolio Challenge.  I will cover addition trades in coming post regarding trading in your CNBC Portfolio.

Best of Luck in trading for a MILLION Dollars.

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