Top 10 Options Trades for 2010

#10 UltraShort Financials ProShares (SKF) Calls

By Michael Shulman

Several trends will emerge in 2010 that will dismay the bank bulls. The banking sector is becoming bipolar: Some banks are increasingly self-sufficient,
requiring little or no federal support, while the others are on life support and will continue to be so in 2010. 

Some of the banks seem to be “all right” — like Bank of America (BAC) and Wells Fargo
(WFC) — are not. BAC may be trying to pay back TARP money, and it made money this year due
to the old Merrill Lynch trading operation, but the quality of its balance sheet continued to deteriorate in 2009, and it still needs $118 billion
in federal guarantees of its debt to function. WFC will have to put more than $100 billion in what I assume are less-than-pristine assets on its books
in January, has reserved far too little against future losses, and is not even close to paying back TARP funds. And forget about Citigroup (C)
– a walking zombie with $300 billion in federally guaranteed debt, $45 billion in TARP funds and a flailing business. But I think the big surprise
in 2010 will be the weakness in earnings among pretty good banks. The flat recovery or double-dip recession is going to hammer their earnings, and
as the time of rising interest rates draws nearer, operating profit expectations will fall.

So go long the UltraShort Financials ProShares (SKF) – the double-inverse ETF that goes
up about 1.5%-1.6% for every one-point fall in the Dow Jones Financial Index. The high-risk/high-reward trade here is to buy SKF calls.