Here is one we can work for a long time, I think.

TBT, which is a blend of Treasuries that produce a 20 year maturity, moves higher with interest rates. It is the "ultra short" version of the bond price, but seems to be a good proxy for 10 times the interest rate. Today it is at 48.50, which is almost exactly 10 times the 4.8% interest rate of a 20 year bond. It was 70 in early 2008 (when it was created) which was similar to 10x the interest rate for a 20 year note at that time. It is not really pegged to that rate, but should move proportionately.

I think we can all agree that interest rates move higher from here. So, I suggest buying the 38 June call and selling the 58 June call. This gives a 20% upside between now and June on a $9.70 investment, which means a better than 100% return if interest rates move over 5% by that time. I just got done discussing using a put to protect the downside, creating a collar, but there is no point in this case. The price never got below 38 in the crisis and it is hard to see lower interest rates than what we just had....forever.

I like using options for any of the "Ultra" or amplified short ETFs because they all use Swaps and the futures market to build their positions. Trading costs and other futures market ineffiiciencies cause the price of such ETFs to deteriorate over time. Using options forces a repricing of the underlying as the traded options expire. This manages (does not eliminate) the problem with short ETFs.

Here are the tickers:

Buy June 38 TBTFL Call for 11.00
Sell June 58 TVTFF Call for 1.30

Net Cost = $9.70 / contract

I think we will be able to keep this trade on, rolling forward and upward, for the next 2-3 years as interest rates climb back into "normal" territory with the 20 year maturity average getting back to 7%. If inflation explodes because the Fed screws up, this is an even better trade and those levels, and beyond, come much faster.

Successful investing is all about a contrarian perspective. It is my personal challenge to stay contrary at all times. I am naturally that way, so it is somewhat easy for me. Still, there are times, like June or October 2007, when my contrary warning bells were going off, but I did not listen and I stayed long, much too long.

But just as too much positive talk should trigger a contrary response leading to the action of "Sell", so too the same is true when there is too much negative sentiment, like right now. I actually allowed myself to be talked into this negativity in late July, much to my personal detriment. I went short the market in some of my accounts, and sold stock and funds in others, with the market at SP500 = 950. I was worried about all the things I should have ignored: approach of 1000 on the SP index, approach of traditional scary September-October time period, talk of a double dip recession, talk of healthcare and all that it would do to the economy, etc.

But now, I have my head back on straight and I am long the markets and am rejoicing in negative talk. For example, today the Chicago Purchasing Managers Index (PMI) report was released. It fell to 46.1 from 50.0 the previous month. It was expected to be at 52.0. Anything below 50 indicates negative purchasing sentiment.

At the same time, the ADP private payroll forecast was weaker than had been expected by market participants and so the stock markets sold off. On the surface, this is bad news and reinforces the "double dip" recession, or "W" stock market talk. It should be a very bearish signal, right?

No. Wrong. In the economy and markets, quite often, what's down is up and what is up is down. It is a bit of "Alice In Wonderland". The reason that bad PMI and unemployment data are good? It is that it gives the Fed and Treasury the cover to continue with aggressive monetary and interest rate policy to get the economy back on track. As soon as the economic data turns stronger than Fed forecast will be the day the markets turn down.  The Fed and Treasury will start applying the brakes by raising interest rates and tightening money supply.

Stronger economic data means higher interest rates. Higher interest rates mean an eventually weaker equity environment for no other reason than alternate investments yielding interest rate returns begin to look more attractive and shift some demand away from stock equities.

The sweet spot in any market recovery is when the economy bottoms but before it heats up enough to force higher interest rates to counter inflation. We are right now at the point of optimal return and have been since March. I am staying long until the Fed starts raising rates, probably not till after the middle of 2010.

Here is a video clip on the ADP report: