How to trade the new Greek panic

But, wait..they said Greece’s problems and therefore the entirety of the EU was fine. Less than a handful of trading days ago, here were the headlines, straight from last Tuesday’s “Must-reads” column right here on these pages:

Rekindled Optimism In Europe – I’ve got Europe crisis fatigue. This stupid “bail out the banks in the name of saving the EU” game will last til the money runs out. Their system is bankrupt without some major overhauling within the next two years. Or we can have endless so-called “crisis” over there til the collapse truly comes. Stop the games now while you still can, EU! The only answer is to write down the debt obligations on every single country’s balance sheet, forcing all the banks who stupidly invested in that crap to lose everything and wipe out their shareholders and force big losses and ownership on every lender they had and to allow capitalism to rebuild the system. I’m not bullish like I was anymore now that the world is optimistic about Europe again. I’ll be more bullish the next time they panic because another panic will come until the stop the madness. Just today, I’ve trimmed some Sandisk, Riverbed and Nuance calls.

Or last Thursday, they were really promising it was all good, remember:

Will European Debt Solution Work? and Live Updates: Reaction to EU Plan – The answer to the first question is, in my estimation — yes, it kicks the can down the road for a little while, maybe a year or two and then no after that.  As I put in in my chat on yesterday:

“Upshot is that I don’t think there’s anything that the EUcrats can do except further kick the can down the road. If they pull that off and the market decides that it’s still backstopped by taxpayers, then we’ll have a big near-term rally. If not, the markets will likely get hit near-term.”

The markets are up about 2% across the board here in the early going, with breadth 10 to 1 positive. Apparently the bears and shorts I know aren’t a minority out there — this type of now panicky buying comes from shorts being squeezed out of their positions and bears running for the hills.  With our portfolios blasting to new highs, I’m selling 1/4 of my Bank of America BAC common stock position for a 25% gain in less than a month. I’ve also been trimming down other longs this week too.

Don’t get me wrong — I’m not soothsayer and I’m not trying to do a victory dance here.  But guys, now we’re having the exact reaction to the same play that we’ve seen several times in a row for months on end now.  Let’s continue to follow the playbook.  We bought the crashes, we sold the hype, now we’re seeing the crashes come back.  At least the last couple days, anyway.

If there were some names that had run away from you that you wanted to establish some core positioning in, now is not a bad time to start doing so. Just make sure you use scales and don’t go all in on the first tranche.  This market has a loft of room to both crash and spike in the near-term, given how quickly and strongly we just rallied off those lows of the summer.  So easy does it.

I bought some puts yesterday in BK and LPS in addition to having sold/trimmed/hedged so much last week.  I’m not looking to make any major changes to the portfolio, but I am on the lookout for an earnings trade or two, so stay alert for those.