Trade Placed: Dec 2009

On Friday I sold to open 1 Dec 2009 1425 put for 1.10. This past Wednesday I had closed out the Dec 1325 put in order to take December risk off the table. At that point I thought I might just let the remaining open Dec 09 1400 put ride as I didn't want to put more risk on the table into year end - why risk it? Then overnight Wednesday doubts surfaced as to whether or not Dubai might default on its debt. Markets in the US were closed Thursday for Thanksgiving, and the foreign markets were beaten down. I was glad I had closed out the 1325 put the day before as I thought if the Dubai issue got messy, the US market could become a safe haven of sorts, and the dollar would rally, driving down the US markets. Pre market futures on Friday in the US were down 50 on the Nasdaq and 300 or so on the Dow. As soon as the US opened however, the markets began to rise. By the end of the day the stock market ended down 154 points (-1.48%) on the Dow Jones and 38 points (-1.73%) on the Nasdaq. European markets had managed to close in the green and recover to their pre Dubai levels. I interpreted this to mean the crisis in the Middle East may not be as serious as people thought. With a 20% rise in the VXN and just 20 days until Dec expiry, I decided to sell the 1425 put (19.35% otm). I wanted to take advantage of the increased premium on 20% otm puts as well as the rate of time decay which will begin to kick in. The NDX is down just about 2% from its most recent highs on Nov 16th – another 5% or so decrease will still leave the index well above the 1425 and 1400 strikes I have sold short for December. In the meantime, I have placed sell to close orders for .05 on both remaining trades.

Index level: 1766.81
Sell to open: 1 Dec 09 1425 put
Credit received: 1.10
Initial Margin req.: $14,265.00
Commission: $1.25
Net credit: $108.75
Days to expiry: 20
Simple return: .77%
Yield: 14.07%
% to ITM: 19.35%
% Probability of expiring ITM: 2.13%
VXN level: 25.13%
Mmkt equivalent earnings @ 1.30%: $10.21

Please view my disclosure on the bottom of this blog!!

Trade closed: Dec 2009

On Wednesday Nov 25th, I closed out the Dec 1325 put for .30. I wanted to take the risk off the table and felt that the cost to close of .30 was well worth it. At the time, the trade had made 93% of its possible max profit. There were 22 days until expiry and didn't want to wait that long to free up my collateral.

Index level: 1793.75
Buy to close: 1 Dec 09 1325 put
Cost to close: .30
Initial Margin req.: $13,250.00
Commission: $1.25
Net debit: $31.25
Profit: $417.50
Days open: 28
Simple return: 3.15%
Yield: 41.07%
% to ITM: 26.13%
VXN level: 21.31%
Mmkt equivalent earnings @ 1.30%: $13.21

November 2009 results:

November turned out to be the most profitable month to date. I attribute this to the late October spike in the VXN which enabled me to sell the Dec 1250 put for a nice premium. Soon after, however, the VXN retreated back to its recent lows and remains stuck at the lower end of its trading range. This limits the premium I can sell puts 20% otm for. I would consider selling puts 15% otm, but with the year wrapping up I am becoming leary of what turn the market may take. I am especially worried about the weakness in the USD and when it may reverse, since the market seems to be rising as the dollar weakens. I think this may mean once we see USD strength, the market may turn lower, becoming uncomfortably close to 15% otm sold puts. However, should the market turn lower in the next few days, I would still look to sell puts 20% otm and possibly some Jan 2010 puts that I would close out when the market rose again. At this point, the premiums available for Dec options aren't high enough to risk selling further options and I would rather close the year with an additional $500 or so from the Dec puts I have already sold.

Trade closed: Nov 2009

Today the Nov 1375 put and one Nov 1400 put were filled at .05 (no commission at TOS) - tomorrow I expect the one remaining 1400 put to be filled as well.

Index level: 1805.80
Buy to close: 1 Nov 09 1375 put
Cost to close: .05
Initial Margin req.: $13,995.00
Commission: $0.00
Net debit: $5.00
Profit: $143.75
Days open: 45
Simple return: 1.05%
Yield: 8.48%
% to ITM: 23.86%
VXN level: 22.71%
Mmkt equivalent earnings @ 1.30%: $22.03

Index level: 1809.55
Buy to close: 1 Nov 09 1400 put
Cost to close: .05
Initial Margin req.: $13,995.00
Commission: $0.00
Net debit: $5.00
Profit: $83.75
Days open: 24
Simple return: .60%
Yield: 9.10%
% to ITM: 22.63%
VXN level: 22.89%
Mmkt equivalent earnings @ 1.30%: $11.96

I have been researching the extent to which each of the previous 7 rallies since May have climbed and it seems that the current rally from Nov 2nd has climbed just under 10% - the average rise being 9.88%. Does this mean the currcent rally is over extended and will soon pullback the average retracement of 6.06%? Possibly, as the low volume that has been driving this rally higher makes the move suspect. The VXN is also back down to the low point of its recent trading range around 23. Potentially, the market could be setting up for another pullback - if this does occur, I will be looking to sell further 1400 Dec puts (or lower) - the 31 days left until expiry will allow for juicy put premiums should the market endure the kind of pullback that occurred at the end of October when the NDX lost 7% in 5 trading days.

Trade Placed: Dec 2009

Yesterday, I sold to open 1 Dec 09 1400 put 22% otm. Now that earnings season is wrapping up, I am getting the sense that the market is feeling a bit topped out. The advance since the Nov 2nd low has been on low volume, and I don't see a catalyst for further advance at this time. Todays decline was on heavier volume than on any other day of the recent runup, other than the reversal day on Nov 2nd. The VXN is again at the lower end of its trading range - possibly setting up for a reversal and higher option premiums to be sold. Should a deeper pullback develop in the next few days, I would be looking to sell the 1400 or lower strikes. At this time, I am not planning to buy to close the Dec 1325 put, as it should stay safely otm until expiry in 35 days.

Index level: 1788.31
Sell to open: 1 Dec 09 1400 put
Credit received: 1.50
Initial Margin req.: $13,997.50
Commission: $1.25
Net credit: $148.75
Days to expiry: 36
Simple return: 1.07%
Yield: 10.87%
% to ITM: 21.71%
% Probability of expiring ITM: 2.42%
VXN level: 23.13%
Mmkt equivalent earnings @ 1.30%: $17.93

Please view my disclosure on the bottom of this blog!!

Trade Closed: Nov / Dec 2009

Today I closed a Nov 1400 put for .25 and the Dec 1250 put for .65. These were closed to free up collateral, and in the case of the Dec put, to take profits since the trade had made 82% of the max profit and still had 38 days left until expiry. In most cases, I follow this as a rule - once 75 - 80% of the max profit has been made in a relatively short time, close the trade to free up collateral and take profits, rather than waitng a few weeks to close the trade out for the remaining 20 - 25% of the profit. I do this to avoid locking up collateral for a prolonged period of time - it also allows me to look for another trade to place.

I have entered a gtc order to close the other Nov puts for .05.

Index level: 1762.29
Buy to close: 1 Nov 09 1400 put
Cost to close: .25
Initial Margin req.: $14,010.00
Commission: $1.25
Net debit: $26.25
Profit: $257.50
Days open: 10
Simple return: 1.84%
Yield: 67.09%
% to ITM: 20.56%
VXN level: 23.80%
Mmkt equivalent earnings @ 1.30%: $4.99

Index level: 1768.40
Buy to close: 1 Dec 09 1250 put
Cost to close: .65
Initial Margin req.: $12,495.00
Commission: $1.25
Net debit: $66.25
Profit: $302.50
Days open: 10
Simple return: 2.42%
Yield: 88.36%
% to ITM: 29.31%
VXN level: 23.53%
Mmkt equivalent earnings @ 1.30%: $4.45

Trade Placed: Dec 2009

On Friday Oct 30th, I sold to open 1 Dec 2009 1250 put for $3.70 at the close. The trade was placed to capture the elevated premium and to sell an option 25% otm. Again, I am not expecting a truly significant market pullback in the coming weeks. I believe this trade will remain otm until expiry. Also, there are multiple levels of support beneath, as well as hungry buyers waiting to get back into the market before year end.

Index level: 1677.13
Sell to open: 1 Dec 09 1250 put
Credit received: 3.70
Initial Margin req.: $12,495.00
Commission: $1.25
Net credit: $368.75
Days to expiry: 48
Simple return: 2.95%
Yield: 22.44%
% to ITM: 25.02%
%Probability of expiring ITM: 4.74%
VXN level: 29.81%
Mmkt equivalent earnings @ 1.30%: $21.35

Please view my disclosure on the bottom of this blog!!

Trade Placed: Nov 2009

On Friday Oct 30th, I sold to open another Nov 1400 put for $2.85. With the huge pop in the VXN (+ 17.36%), I definitely wanted to take in the premium available, and set to expire in 20 days. I believe that the run-up in the volatility level, while both expected and rational, is a little overdone. As I said in a previous post, it isn't like last September when the world was facing a financial crisis of unknown proportions. The market has simply had an un-supportable runup in economic expectations which are beginning to show that they were unfounded. Exactly where is the economic growth going to come from now that cash for clunkers is over and the economic stimulus is not doing much to either preserve or create new jobs.

In the short term, I expect another day or so of market turmoil, and then a gradual decrease in the VXN and a leveling out to gradual decline in the market. I do think we are headed lower, but at a slower pace than the last few days. Then I expect a run up into year end as investors on the sidelines put their money back to work in names that are 10% lower than they were just last week.

Index level: 1677.35
Sell to open: 1 Nov 09 1400 put
Credit received: 2.85
Initial Margin req.: $14,010.00
Commission: $1.25
Net credit: $283.75
Days to expiry: 20
Simple return: 2.03%
Yield: 36.96%
% to ITM: 16.03%
%Probability of expiring ITM: 4.84%
VXN level: 29.58%
Mmkt equivalent earnings @ 1.30%: $9.95

Please view my disclosure on the bottom of this blog!!

Trade Placed: Dec 2009

Today I again took advantage of the increased volatility and sold a December 1325 put for $4.50. I sold the December contract so I would have 50 days until expiry - a few days more than usual, but I went further out in time to receive a larger premium due to both the increase in the VXN as well as the number of days until expiry. The 1325 level was last crossed in late April and would represent a retracement of 61% of the run from March to last week. I do see this pullback continuing further, but I still think that buyers will step back in to ride the market higher into the end of the year. There are also multiple levels of support beneath the market.

Depending on how the market reacts tomorrow (jobless claims and Q3 GDP in the am), I am looking to sell another put - either a Nov 1400 (I didn't plan on selling another Nov, but I don't think the high premium is justified by an option with 21 days left until expiry and 17% otm)or a December 1400 put ($7.95 mark) that I would close out once the VXN declines or I take in 50% of the premium. Also of note is that in order for the NDX to get down to the 1400 level in 3 weeks, we would need another financial crisis sell off reminiscent of last fall - I just don't think a move like that is in the cards.

Index level: 1684.23
Sell to open: 1 Dec 09 1325 put
Credit received: 4.50
Initial Margin req.: $13,250.00
Commission: $1.25
Net credit: $448.75
Days to expiry: 50
Simple return: 3.39%
Yield: 24.72%
% to ITM: 21.23%
%Probability of expiring ITM: 5.80%
VXN level: 27.91%
Mmkt equivalent earnings @ 1.30%: $23.60

Please view my disclosure on the bottom of this blog!!

Trade Placed: Nov 2009

Today I took advantage of the increased volatility and decaying time premium and sold another Nov 1400 put for $1.20. I am also monitoring the Dec 1400 puts which mark for $5.15 - if my timing is correct and I can sell them as this downturn ends, I plan to close them out early and take 75% of the gain.

Index level: 1724.69
Sell to open: 1 Nov 09 1400 put
Credit received: 1.20
Initial Margin req.: $13,995.50
Commission: $1.25
Net credit: $118.75
Days to expiry: 23
Simple return: .85%
Yield: 13.47%
% to ITM: 18.83%
%Probability of expiring ITM: 2.23%
VXN level: 25.35%
Mmkt equivalent earnings @ 1.30%: $11.49



Please view my disclosure on the bottom of this blog!!

Trade Idea: Nov 2009

With today's 8% jump in the VXN, this may soon be the perfect time to sell Nov/Dec premium. I am looking at more Nov 09 1400 puts (20% otm) - depending on how much the market declines, I may be able to get 1.25 or more with less than 24 days until expiry. Should the market take a steep decline, I might look into selling 1400 or lower Dec puts for $4.50 or so and then close out the position when the market rebounds, just as it has the last 6 times since the March low. I think that with the need to show that your fund owned the market leaders at year end, portfolio managers will take advantage of the decline to pile into names like AAPL, AMZN, GOOG, driving the NDX higher. After that, I think the direction of the market will depend on how well the green shoots are doing. Time to get the Ortho.....................

Below I have been working with some data which shows the point and percent moves between NDX settlement values on expiry. It's interesting to note the % moves between expirations (approximately 30 days). The last time (prior to October 2008) since June 2002 that the NDX settled down more than 10% from the prior expiry was Jan 08 when it settled down 12.40%. So, for the period from July 2002 until Sep 2008 (or 75 months)the NDX expired less than 12.40% from the previous months NDX settlement value at expiration. This means that for those 75 months, you could have sold a 20% otm option on expiration day for the following months expiration and been no more than 7.60% close to the option being in the money (not including intraday moves between expirys)! I am also working on an intraday version of this data for the 30 and 42 day periods. More on this data and how it can be used in a coming post.

Trade Placed: Nov 2009

On Friday Oct 23rd, at the close I sold 1 Nov 1400 put for .90 with 27 days until expiry. With time running out and premiums dropping, I wanted to squeeze out some premium while I could. This is typically less premium than I would bother trading for, but with the VXN potentially running lower or remaining flat and more money coming in off the sidelines to chase the market into year end, I placed the trade.

Index level: 1753.63
Sell to open: 1 Nov 09 1400 put
Credit received: .90
Initial Margin req.: $13,995.00
Commission: $1.25
Net credit: $88.75
Days to expiry: 27
Simple return: .64%
Yield: 8.69%
% to ITM: 20.17%
%Probability of expiring ITM: 1.68%
VXN level: 22.62%
Mmkt equivalent earnings @ 1.30%: $13.49

Please view my disclosure on the bottom of this blog!!

October 2009 results:

October was the 2nd best month so far, due mainly to the fact that I was able to sell a November 1300 put early in October when the NDX was in a decline and the VXN rose by 10% to the 30 level. The net on that sale was $387.50 on 13,000 margin. $366.00 was made on 41,000 margin, which again shows that with the VXN deflating month to month, it is getting harder to sell premium at least 20% otm and receive a decent premium. Todays 7% increase in the VXN is encouraging, especially considering the market is still climbing higher. Hopefully the market will enter into another 5% pullback, allowing for more Nov puts to be sold.

Trades Closed: Oct / Nov 2009

In the past few days I have closed out the remaining October contracts for .05 as usual. I also closed out the Nov 1300 put I sold on 10-02 as the trade had made 83% of the max profit, or $387.50 in 13 days. I take profits if the trade makes 75% or more of its max profit within 2 weeks of placing the trade. This avoids having about 4 more weeks of life in the trade and watching as the market takes back the profit the trade had earned should the market turn down. It also frees up my margin to sit in the account or to use to place more trades.

Oct 9, 2009
Index level: 1725.52
Buy to close: 1 Oct 09 1300 put
Cost to close: .05
Initial Margin req.: $12,997.50
Commission: $0.00
Net debit: $5.00
Profit: $148.75
Days open: 29
Simple return: 1.14%
Yield: 14.40%
% to ITM: 24.66%
Mmkt equivalent earnings @ 1.30%: $13.42

Oct 12, 2009
Index level: 1740.81
Buy to close: 1 Oct 09 1400 put
Cost to close: .05
Initial Margin req.: $14,005.00
Commission: $0.00
Net debit: $5.00
Profit: $108.75
Days open: 21
Simple return: .78%
Yield: 13.50%
% to ITM: 19.58%
Mmkt equivalent earnings @ 1.30%: $10.47

Oct 14, 2009
Index level: 1743.50
Buy to close: 1 Oct 09 1400 put
Cost to close: .05
Initial Margin req.: $14,005.00
Commission: $0.00
Net debit: $5.00
Profit: $108.75
Days open: 23
Simple return: .78%
Yield: 12.32%
% to ITM: 19.70%
Mmkt equivalent earnings @ 1.30%: $11.47

Oct 15, 2009
Index level: 1746.79
Buy to close: 1 Nov 09 1300 put
Cost to close: .80
Initial Margin req.: $12,995.50
Commission: $1.25
Net debit: $81.25
Profit: $387.50
Days open: 13
Simple return: 2.98%
Yield: 83.72%
% to ITM: 25.58%
VXN level: 23.20%
Mmkt equivalent earnings @ 1.30%: $6.02

Trade Placed: Nov 2009

Today, before the end of day spike, I sold a Nov 09 1375 put for 1.50. Volatility is pulling back as the Dow breaks 10,000 and it seems like this earnings season will be a repeat of the last one - less bad is good!

Index level: 1748.84
Sell to open: 1 Nov 09 1375 put
Credit received: 1.50
Initial Margin req.: $13,747.50
Commission: $1.25
Net credit: $148.75
Days to expiry: 36
Simple return: 1.08%
Yield: 10.96%
% to ITM: 21.38
%Probability of expiring ITM: 2.49%
VXN level: 23.07%
Mmkt equivalent earnings @ 1.30%: $17.60

Please view my disclosure on the bottom of this blog!!

Trade Placed: Nov 2009

Friday I sold to open 1 Nov 2009 1300 put for 4.70, about 22% otm. I had placed the trade mid morning and watched as the price dipped to 4.30 or so. I was actually surprised to see I got filled, as I expected an unchanged VXN to have eaten away at premiums. Either way, I'll take it.

Earnings season begins this week and it will be interesting to see if companies will be able to show actual earnings growth now that they can't dip back into the human resource pool to fire workers, reduce costs, and beat earnings - or has the market already factored that in? Personally, I won't be surprised to see more in the way of a pullback from here on lousy earnings. 10% would put the NDX right at its current 200 dma (1508.00)- an area sure to provide support, and the 50 dma lies higher at 1640.90 - another area of support.

I have placed limit orders to close out all October trades at .05 (11 days until expiry). However, I may close them for more in order to free up margin to take advantage of elevated November put premiums. Depending on volatility, I may also try to sell another Oct put (the 1400 puts mark is 1.38) in order to add to this months profit. For Nov, I am looking at another 1300 put, or lower, depending on how much the market pulls back from here and how pitiful earnings are. At the earliest, I don't plan on placing another Nov 09 trade for a week or so, in order to let the number of days before expiration to decrease.

It's easy to sell puts in a rising market and make $, but once the market begins to pull back the trick is to receive enough premium and at the same time stay far enough away from the declining market.

Index level: 1661.42
Sell to open: 1 Nov 09 1300 put
Credit received: 4.70
Initial Margin req.: $12,995.50
Commission: $1.25
Net credit: $468.75
Days to expiry: 48
Simple return: 3.61%
Yield: 27.43%
% to ITM: 21.75
%Probability of expiring ITM: 5.88%
Mmkt equivalent earnings @ 1.40%: $23.95

Please view my disclosure on the bottom of this blog!!

Trade Idea: Nov 2009

I am looking to sell a Nov 1300 put for $3 or higher. The return / yield on the required 13k margin for 49 days will be 2.31%/17.20% while ThinkorSwim is showing a 3.87% chance of expiring itm. The strike is roughly 25% otm and there are multiple levels of support underneath the index around about 1600 / 1500 / 1400. I am looking to place this trade to avoid the issue I have been having for the past few months - volatility dropping and premiums on options with 30 - 40 days until expiry selling for a somewhat small premium, producing a return of only about 1%. Of course, selling the strike with 49 days in its life enhances the risk that some event may drive down the index and increase the cost to close the position, but I feel comfortable that we are not approaching another black swan event - at most a normal pullback of 7 - 10% or so.

It seems like the market is entering a period of rising volatility and consolidation or possible decline. I believe we may be at the point where the economic news begins to falter, pointing out the fact that the economy isn't as robust as many believe. We also have jobless claims tomorrow and the unemployment rate coming out Friday am - will the market take it as a positive that "only" 170k (the consensus number) people have become unemployed in the last month? Too bad most of them wont be able to find a job.

Trade Placed: Oct 2009

Today I sold to open 2 Oct 2009 1400 puts for 1.15 each, about 19% otm. There are just 24 days until expiry and I wanted to place the trades while there was still a fair amount of premium left to take in. However this trade came at a cost of roughly $28k in margin. Volatility levels still are not providing for larger premiums, but the trade off is a shorter time than usual until expiry.

Index level: 1731.19
Sell to open: 2 Oct 09 1400 put
Credit received: 1.15
Initial Margin req.: $28,010.50
Commission: $2.50
Net credit: $227.50
Days to expiry: 24
Simple return: .81%
Yield: 12.35%
% to ITM: 19.13%
Probability of expiring ITM: 2.29%
Mmkt equivalent earnings @ 1.40%: $25.75

Please view my disclosure on the bottom of this blog.

September 2009 Results:

September ended with another gain even as volatility levels continued to decline. All options were closed out for .05. I wanted to place more trades, but the fear of a suddenly reversing market kept me from doing so. I still believe the market is approaching a critical level where a pullback of 10% or so will occur, especially as the NDX is approaching a multi year congestion area around the 1750 level. The VXN is still bouncing around its mean levels since July, either to go higher or drop back down into pre Lehman channel of 22 to 35. However, any pullback will come with elevated VXN levels as traders look to lock in their profits from the last 6 months. As we approach last Septembers market levels, we should consider if things are really any better than they were before the financial collapse last year.

Trade Closed: Sep 2009

Today, I was filled on closing 1 Sep 2009 1250 put at .05 - hopefully the other will get filled on Monday.

Index level: 1681.46
Buy to close: 1 Sep 09 1250 put
Cost to close: .05
Initial Margin req.: $12,505.00
Commission: $0.00
Net debit: $5.00
Profit: $143.75
Days open: 24
Simple return: 1.15%
Yield: 17.48%
% to ITM: 25.66%
Mmkt equivalent earnings @ 1.40%: $11.51

Trade Placed: Oct 2009

Yesterday I sold to open 1 Oct 1300 put for 1.55 with 35 days until expiry. I feel we are close to a breakdown in the NDX, but wanted to place a trade to take in the premium available at that time, and still with more than 30 days until expiry. I hadn't placed the trade earlier because I want to avoid selling a put for "x", then seeing several days later the market has declined, the VXN has risen, and the same put can be sold for "2x" - still safely 20% otm, but now worth twice as much. At some point the market will pull back and richer premiums will be available. Since there are close to 30 days left until expiry, time decay will start eating away at the put premiums available for 20% otm options, so I placed 1 trade and hopefully will be able to sell several other strikes as the market pulls back.

Index level: 1685.46
Sell to open: 1 Oct 09 1300 put
Credit received: 1.55
Initial Margin req.: $12,997.50
Commission: $1.25
Net credit: $153.75
Days to expiry: 35
Simple return: 1.18%
Yield: 12.34%
% to ITM: 22.87%
Probability of expiring ITM: 2.43%
Mmkt equivalent earnings @ 1.40%: $17.42

Please view my disclosure on the bottom of this blog

Trade Idea: Oct 2009

I have been watching the Oct 1200 strike to sell. As of today's close it is 25% otm and can be sold for about $1.95 - actually during the day it was as high as $2.65, but the volatility level started to slide and took premium with it. It would yield about 14% - not great, but I am willing to trade that the NDX isn't likely to tumble 25% in the next 6 weeks. I didn't sell it today as the unemployment report comes out tomorrow morning. This week it seems that the market is reacting poorly to better economic news - the ISM reached above 50 and a somewhat better ADP jobs report was released (however I think that even though fewer jobs are being lost, they are still being lost). Many are calling for the unemployment rate to jump higher to 9.6%, but remember last month the rate actually fell (although it fell not because more people found jobs, but because their benefits ran out and they were no longer included in the official number). Should a worse than expected report come out, the VXN will spike higher, increasing the premium I can sell the 1200 put for. If a stronger report comes out, I may wait until after the holiday to sell put options - of course at that point I will wish I had just sold the 1200 for $2.65 today.

As for the options I am still short which expire in 2 weeks, the Sep 1300 is 19.05% otm and the 1250's are 22.17% otm - I have my buy to close on them for .05. Once the 1250's are bought back, it will free up the $25k in margin which I can put to work in Oct options. The net pnl for the month will be about $560.00 - the second best month so far.

Trade Placed: Sep 2009

Today I sold 2 NDX Sep 1250 puts, about 21% otm. The VXN gave back about half of its gain from yesterday, taking premium along with it. At the close yesterday the 1250's were going for about 2.10 or so, so about 30% of the premium from yesterday evaporated today. Since the premiums available had decreased, I sold 2 contracts to take in a large enough premium to make the trade worth doing. I feel comfortable that time decay will overcome any downward move in the NDX between now and expiry Sep 17th. Most of the pundits are predicting a 10% downward move before buyers step back in and run the market higher. There are also several areas of support for the market below its current level. Using Fibonacci retracements the 38% level lies at 1407 - or about 11.8% below its close and the 50% lies at 1340 - 15% below. Coincidentally, these retracement levels have been tested as support before, so they should hold up again.

Index level: 1589.44
Sell to open: 2 Sep 09 1250 put
Credit received: 1.50
Initial Margin req.: $25,010.00
Commission: $2.50
Net credit: $297.50
Days to expiry: 30
Simple return: 1.19%
Yield: 14.47%
% to ITM: 21.36%
Probability of expiring ITM: 2.79%
Mmkt equivalent earnings @ 1.40%: $28.78

Please view my disclosure on the bottom of this blog.

August 2009 Results:

I was only able to place 2 trades for Aug expiry and also had to deal with exceptionally low premiums due to the falling VXN. This months profit was just $312.50 - the second smallest since February. I have been calling for a pause in the market for some time now, and yesterdays pullback seems like it will be less than hoped for. The only way to overcome such low premiums is either to sell more contracts 20% otm with about 30 days to expiry, or to sell contracts about 6 weeks out, for a higher premium. However, I am glad to see I have had only 1 small loss since February and as long as the NDX / MNX continue to climb and avoid another black swan event, it is likely that this strategy will contribute about $6,000.00 to my pnl for the year.

Trade closed: Aug 2009

The gtc order I had in to close the Aug 1300 put was filled today:

Index level: 1573.40
Buy to close: 1 Aug 09 1300 put
Cost to close: .05
Initial Margin req.: $12,992.50
Commission: $0.00
Net debit: $5.00
Profit: $123.75
Days open: 19
Simple return: .95%
Yield: 18.30%
% to ITM: 17.38%
Mmkt equivalent earnings @ 1.40%: $9.47

Trade update: Sep 2009

The long awaited pullback - on volume - finally came. Today the VXN increased 2.35 points or 9.31% while the NDX lost 46.69 points or 2.90%. I am watching the Sep 1300 and 1250 puts for a trade - the 1300 put can be sold for about $3 and the 1250 for $2. I don't view this pullback as caused by another black swan event or financial crisis, rather just as an overdue pullback after the recent market highs - profit taking has been long overdue. There are multiple levels of support below, which are sure to draw in more buyers than sellers, at least for a time. I don't believe this pullback will be too quick and powerful, more like slow and drawn out, as people realize that the economic realities of the day don't support such high market levels. In the mean time, I plan on placing trades tomorrow to take advantage of the higher volatility premiums that can be found in September puts that are 20% or so otm.

Trade closed: Aug 2009

Yesterday, I closed the Aug 1200 put at .05 (to take the risk off the table - no commission charged by ThinkorSwim). I have a GTC order to close the Aug 1300 put for .05 as well.

Index level: 1623.01
Buy to close: 1 Aug 09 1200 put
Cost to close: .05
Initial Margin req.: $12,105.00
Commission: $0.00
Net debit: $5.00
Profit: $188.75
Days open: 28
Simple return: 1.56%
Yield: 20.33%
% to ITM: 26.02%
Mmkt equivalent earnings @ 1.40%: $14.39

Trade Placed: Sep 2009

Index level: 1603.59
Sell to open: 1 Sep 09 1300 put
Credit received: 2.80
Initial Margin req.: $12,995.50
Commission: $1.25
Net credit: $278.75
Days to expiry: 38
Simple return: 2.14%
Yield: 20.60%
% to ITM: 18.93%
Probability of expiring ITM: 4.50%
Mmkt equivalent earnings @ 1.44%: $19.48

Please view my disclosure on the bottom of this blog

Trade Placed : August 2009

On Friday I sold the Aug 1300 put for $1.30. As the market opened down, as feared the VXN index opened down as well. Within a few minutes of trading it quickly became apparent that even a lower NDX couldn't help the volatility index from diving lower and lower. With only about 25 days until expiration, it is highly unlikely that it will be worth placing any further Aug trades due to a lack of premium. The market's uptrend looks like it may continue for a while. I am hesitant to sell the call side (remembering the Jul 1550 call), because this market seems like whether the news is good or bad, it will continue to climb.

Index level: 1579.60
Sell to open: 1 Aug 09 1300 put
Credit received: 1.30
Initial Margin req.: $12,992.50
Commission: $1.25
Net credit: $128.75
Days to expiry: 27
Simple return: .99%
Yield: 13.40%
% to ITM: 17.72%
Probability of expiring ITM: 2.28%
Mmkt equivalent earnings @ 1.55%: $14.90

Please view my disclosure on the bottom of this blog

Trade Update: Aug 2009

Today's aftermarket does not bode well for tomorrows session. MSFT and AMZN are getting killed in the after hours session and the NDX futures (as of 10pm) are down about 25 points from fair value. Today's rally may well have put the nail in the coffin. Interestingly, during the day today I noticed that the VXN was actually in positive territory for the day, even though the NDX was up 2.50% - a sure sign that market players were probably adding to their protection (by buying puts for protection and gearing up for a pullback) and thus driving up the VXN. The 12 day rally is probably running out of steam - we will have to wait for tomorrow to see for sure (however at this time the Asian markets aren't showing any signs of a pullback).

The Aug 1200 put I am short is currently about 25% otm, and I doubt any market drop in the coming days will put that strike in danger. Should tomorrows pullback provide for increased premiums, I am thinking of selling the 1300 strike (19% otm - 15.06% yield) and lower. With just 28 days remaining until expiry, I feel comfortable selling that strike as there are multiple levels of support to fall back on. I just need the VXN to cooperate tomorrow and rise as more and more people become uneasy with their long positions and sell or buy put protection. Without the VXN increasing, it is unlikely that put options at least 20% otm will be worth selling. It would be disappointing to have a meager profit for the month after last months gain.

Trade Placed: Aug 2009

With INTC's blowout earnings last night and today's rally in the markets, the volatility level has been whacked down to its lowest level in a year (25.28). I was able to sell the 1200 strike (20% otm) for just shy of 2 bucks. The NDX is hovering right at its recent highs so I believe it will either break higher in the coming days (depending on the general attitude towards the earnings reports) or come back in due to the resistance that these levels represent. Either way, there are now defined areas of support and resistance to rely on (1500 res. / 1400 / 1350 supp.). In the coming days I will look to place more put trades, hopefully for more premium if the VXN level increases.

Index level: 1497.60
Sell to open: 1 Aug 09 1200 put
Credit received: 1.95
Initial Margin req.: $12,105.00
Commission: $1.25
Net credit: $193.75
Days to expiry: 36
Simple return: 1.60%
Yield: 16.23%
% to ITM: 19.87%
Probability of expiring ITM: 3.59%
Mmkt equivalent earnings @ 1.55%: $18.51

Please view my disclosure on the bottom of this blog.

July 2009 Results:

I am pleased with the July results as I managed to bring in the largest premium amount so far. I contribute this to the fact that 4 trades were placed instead of the usual 2 or 3 and to the large premium received from the 1200 strike put which brought in $322.50. The timing of this trade was particularly good as I managed to place the trade just as the VXN level increased, capturing the increased premium, and closed the trade 9 days later once 75% of the max profit was achieved. I chose to close the trade at this point because the strike was the closest to the money, and remembering that this trading strategy is "low risk", closed the trade once 75% max return was achieved, thereby locking in the quick profit and removing the trades risk.

As I stated in my previous post, earnings season is underway and I expect a rise in the volatility level, increasing the put premiums for August. It seems the market in general is beginning to accept that the economic recovery is further off than the "green shoots" predicted. Hopefully the earnings reports back this up, and the market turns down. I had spoken about selling the Aug 1125 put for about 4.40, but with today's decrease in volatility it now trades for only about 1.90. It is still comfortably 22% otm, so tomorrow I may try to sell it for 2.00 on any uptick in volatility.

Trade Closed: July 2009

Today, I closed the remaining July trades for .05 each, removing the risk involved in each (no commission charged by ThinkorSwim).

Index level: 1405.00
Buy to close: 1 July 09 1025 put
Cost to close: .05
Initial Margin req.: $10,255.00
Commission: $0.00
Net debit: $5.00
Profit: $98.75
Days open: 27
Simple return: .96%
Yield: 13.02%
% to ITM: 27.05%
Mmkt equivalent earnings @ 1.55%: $11.76

Index level: 1405.00
Buy to close: 1 July 09 1125 put
Cost to close: .05
Initial Margin req.: $11,237.50
Commission: $0.00
Net debit: $5.00
Profit: $188.75
Days open: 31
Simple return: 1.68%
Yield: 19.78%
% to ITM: 19.93%
Mmkt equivalent earnings @ 1.55%: $14.79

Index level: 1405.00
Buy to close: 1 July 09 1100 put
Cost to close: .05
Initial Margin req.: $11,505.50
Commission: $0.00
Net debit: $5.00
Profit: $223.75
Days open: 35
Simple return: 1.94%
Yield: 20.28%
% to ITM: 21.71%
Mmkt equivalent earnings @ 1.55%: $17.10

Trade Update: July 2009

There are 8 days left until July options expire. The closest strike to the money is the 1125 which is 20% otm. At this time, I feel comfortable that all 3 strikes will expire worthless, however I will look to close the strikes at .05 when possible. I am now looking to place an August put trade app. 20% otm - currently that would be the 1125 strike at a premium of $4.40. The VXN has risen about 16% since my last post and the NDX has lost about 4.5% and currently is sitting on its 200 dma - a point which may provide some amount of support or area of consolidation, but in the end I expect it to give way, allowing for a further drop in the index.

Earnings season began today and AA had more of the same "less bad news is good news". Things really get going next week when more companies begin to report (INTC on Tuesday, JPM Thursday, and a few transports thrown in as well - the transports should give some early indication as to how far off the economic uptick will be). I plan on waiting to see how the market reacts to the earnings before placing the trade, however, should the VXN begin to come in, I need to act quickly to lock in evaporating premiums.

Trade Update: July 2009

Below is a chart of the remaining open strikes as well as their % distance from becoming itm. With 15 days remaining until expiry, I expect these trades to remain safely otm. I do however plan to close them out at .05 when possible in order to take the risk associated with the trades off. If so, this months net will be about $850.00!

Considering today's poor sentiment numbers and Thursdays jobs report certain to show an increase in unemployment (I personally expect the unemployment rate to come in at 10%), I think we may soon get another break downward in the NDX and coincidentally a rise in the VXN. At that point I would look to start placing Aug 2009 trades. Depending on the premiums I can collect, I would look to place trades 20% otm. Currently that strike would be the 1175 which could be sold for about $4, but depending on the severity of the downward move, hopefully I can sell a lower strike for the same amount if not more.

Trade Closed: July 2009

Today I took advantage of the rise in the index and closed out the NDX 1200 put for 1.15. I chose to close the trade because in 9 days it had earned app. 75% of the max profit, or $322.50, leaving $115.00 on the table. As I had said when I placed the trade, it was closer to the money than I generally liked, so by closing the trade I took the risk involved off the table, leaving the next closest strike to being itm the 1125 put which is currently 24% otm. Nice yield on the trade too!

Index level: 1470.89
Buy to close: 1 July 09 1200 put
Cost to close: 1.15
Initial Margin req.: $12,005.00
Commission: $1.25
Net debit: $116.25
Profit: $322.50
Days open: 9
Simple return: 2.69%
Yield: 108.95%
% to ITM: 18.42%

Mmkt equivalent earnings @ 1.55%: $4.59

Below is a current chart of the NDX as well as the remaining strikes for July 2009.

June 2009 Results:

I was satisfied with the June contracts which I closed out early rather than let them expire. I chose to close them early since 2 of the 3 could be closed for .05. I would rather close the trade for .05 than run the risk, however unlikely, that some event would bring the market sharply down on the Thursday night prior to expiry and leave me unable to adjust the trade since expiry was on Friday morning market open. This would be the worst case scenario and closing the trade prior to expiry eliminates this risk. I also chose to close out the 1550 call because the market hadn't taken the turn down that I had been anticipating. I didn't want to risk having the trade turn into a large money looser, wiping out a good portion of my gains year to date - I have had that happen in the past when I traded bear call and put spreads (another reason I now trade naked index options). Going forward I will provide the monthly returns in spreadsheet format and hopefully soon will have past periods added as well.

Trade Closed: June 2009

Today I closed the June 2009 NDX 1150 put for .05. The trade was closed to lessen overnight risk and free up margin. In addition to the usual criteria I list, I will now start showing what the same margin over the same amount of time would have earned in a money market. The rate I will use to compare with will be the rate I receive on my "high yielding" money market account.

Index level: 1458.00
Buy to close: 1 Jun 09 1150 put
Cost to close: .05
Initial Margin req.: $10,502.50
Commission: $0.00
Net debit: $5.00
Profit: $148.75
Days open: 19
Simple return: 1.42%
Yield: 27.21%
% to ITM: 21.12%

Mmkt equivalent earnings @ 1.55%: $8.47

Open Trade Recap: July 2009

Below is a chart showing the NDX as well as its major support levels, major moving averages, and strikes I currently have sold for July 2009 options. The closest strike to the index (1200) is 17.58% otm. As I had said in my previous post, the gap up on June 1st has left support at about the 1439 level. NDX tested this support today and closed higher. At this point in time I don't believe this downturn is over, maybe just pausing briefly, so I am looking at 1425 to hold as the next support level. However, I still don't think this downturn will turn into the anything like the daily 5% swings the market had at the end of last year.

Trade Placed: July 2009

On June 16th I sold to open 1 NDX July 1200 put for 4.40. The VXN jumped and I decided to take advantage of the increased premium inherent in the put strikes. I chose the 1200 strike because it is below multiple support levels and was 17% otm with 30 days until expiry. This is generally closer to the index level than I like, but I believe any pullback will be a shallow one that won't cause a large increase in the VXN. I think there is just too much money waiting on the sidelines to get into the market.

Index level: 1450.54
Sell to open: 1 July 09 1200 put
Credit received: 4.40
Initial Margin req.: $12,005.00
Commission: $1.25
Net credit: $438.75
Days to expiry: 30
Simple return: 3.65%
Yield: 44.47%
% to ITM: 17.27%
Probability of expiring ITM: 7.23%

Today I sold to open 1 NDX July 1025 put for 1.05. The 1025 strike lies below the March low of 1040 and was roughly 30% otm. I don't believe the market is going to re-test the absolute lows (at least within the nest 29 days), so I believe this strike is safe to sell.

Index level: 1460.58
Sell to open: 1 July 09 1025 put
Credit received: 1.05
Initial Margin req.: $10,255.00
Commission: $1.25
Net credit: $103.75
Days to expiry: 29
Simple return: 1.01%
Yield: 12.73%
% to ITM: 29.82%
Probability of expiring ITM: 1.90%


Please view my disclosure on the bottom of this blog.

Trade Placed: July 2009

On Friday June 12th, I sold to open 1 July 2009 1125 put. I still feel the market is due for a pullback, but I don't think it will be a vicious pullback - more like a slow, drawn out reversal with probably little participation from the VXN, especially since so many are waiting for "the pullback" so they can jump back in. I am also thinking of selling another July put, but one only about 17% otm - currently the 1225 put can be sold for 3.50 or so. Again, I feel the pullback will be shallow, and there is plenty of support at 1435 (the June 1st gap up) and then again at about 1425 and 1340.

Index level: 1476.60
Sell to open: 1 July 09 1125 put
Credit received: 1.95
Initial Margin req.: $11,237.50
Commission: $1.25
Net credit: $193.75
Days to expiry: 34
Simple return: 1.72%
Yield: 18.51%
% to ITM: 23.81%
Probability of expiring ITM: 2.89%

Please view my disclosure on the bottom of this blog.

Trade Closed: June 2009

On Friday I closed the June 1550 call for 2.20 after selling it for 1.65. This resulted in a loss of $57.50 including commissions. I closed the trade since the option was only 4.8% otm with a week left until expiry. The index could have easily jumped higher by more then 5%, putting the option itm. Typically to buy back an option during expiry week, you will have to pay the ask price on a wide spread. I didn't mind the small loss since it was the first loss since February. Also, at one time last week the option was selling for $8 and change, resulting in a loss (if I had closed it then) of about $700 or so! That's the danger involved in selling close to the money options - when I originally sold the option, it was 11% otm, but in this type of rising market, its best to follow the trend and not try to predict when it will turn. Of course, it will turn at some point, but I will try to take advantage of it by selling puts that hopefully have increased premium built into them from a rise in the VXN.

Index level: 1479.50
Buy to close: 1 June 2009 1550 call
Call Cost to close: 2.20
Initial Margin req.: $3,528.50
Commission: $1.25
Net debit: $221.25
Loss: $57.50
Days open: 16
Simple return: -34.85%
Yield: 0.00%
% to ITM when closed: 4.77%


I also closed out the June 2009 1050 put for $5.00. I closed this trade down to free up margin and remove the risk involved with holding this essentially worthless option for another week. For the $5.00 it cost to close, I'll sleep easier. Comparing this to a "high yielding" money market account yielding 1.40%, in the same amount of time and on the same margin, I would have earned $11.25! I'll stick with selling 22% otm options instead!

Index level: 1478.00
Buy to close: 1 June 2009 1050 put
Call Cost to close: .05
Initial Margin req.: $10,502.50
Commission: $0.00
Net debit: $5.00
Profit: $213.75
Days open: 28
Simple return: 2.04%
Yield: 26.53%
% to ITM when closed: 28.96%

I am still short the June 1150 put which I may also close out for $5.00, again to remove the risk involved in the option.

Trade Placed: July 2009

Today I sold 1 NDX July 09 1100 put. I placed the trade with 38 days remaining until expiry to capture the increased premium of an option 38 days out and 25% otm. In the short term, I don't believe that volatility will increase enough to make shorter dated options worth selling. I still have not rolled the June 1550 call I sold - today's market started out weak, but once again, any and all weakness is being bought. Tomorrow, the treasury is issuing 4 week and 3 year securities to fund the huge deficit being created - I expect that if the auction is received poorly and rates climb again, the market will sell off. In the short term, rising rates will only cripple the governments plan to help people refinance at lower rates - in just the last week or so, mortgage rates have climbed nearly a percent (or 25% in terms of its change). What will happen when the bulk of the option ARMS start re-setting? And for a follow thru, 10's are being auctioned Wednesday and the all important 30's on Thursday............hope China brings their wallet............

Index level: 1476.05
Sell to open: 1 July 09 1100 put
Credit received: 2.30
Initial Margin req.: $11,505.50
Commission: $1.25
Net credit: $228.75
Days to expiry: 38
Simple return: 1.99%
Yield: 19.10%
% to ITM: 26.10%
Probability of expiring ITM: 2.97%

Please view my disclosure on the bottom of this blog.

Trade Placed: June 2009

I placed this put trade last Friday. Again, I was trying to capture dwindling premium in this up-market. Since the market has continued higher, I will look into rolling out of the 1550 short call (which has less then 5% and 16 days until becoming itm), unless the market begins to give back ground. I believe we may be seeing the first signs of the market beginning to capitulate - the financials are no longer leading the way higher, the market didn't scream higher on today's mortgage report, and more and more talking heads are speaking of the need for a pullback. Of course, there's always the adage that the market can stay irrational a lot longer than you can stay solvent. That's why I will look into rolling out the 1550 call to next month.

Index level: 143.55
Sell to open: 1 June 09 1150 put
Credit received: 1.55
Initial Margin req.: $10,502.50
Commission: $1.25
Net credit: $153.75
Days to expiry: 20
Simple return: 1.46%
Yield: 26.72%
% to ITM: 19.88%
Probability of expiring ITM: 3.75%

Please view my disclosure on the bottom of this blog.

Trade Placed: June 2009

Today, I sold to open 1 NDX June 1550 call, 10.66% otm. I decided to sell the call option at the close when it became clear that the market was ending the day near its low - showing that sellers wanted out. Hopefully, the downward trend continues and the call remains otm. I may look to close the trade for .05 or less, as I hate to get whipsawed out of calls that were close to itm when they were sold. Current support levels are at 133-135 and again at about 129 and resistance is at the recent highs of about 143. The margin requirement for this trade is quite low as my broker ThinkorSwim considers both the 1050 put and this 1550 call as a strangle, thereby reducing the margin required for this trade. I am still looking into selling another put strike around the 110 level (21.5% otm) - should the downtrend continue tomorrow, I can probably get .15 or so for a 24.5% yield if held until expiry.

Index level: 140.07
Sell to open: 1 June 09 1550.00 Call
Credit received: 1.65
Initial Margin req.: $3,528.50
Commission: $1.25
Net credit: $163.75
Days to expiry: 22
Simple return:4.64%
Yield: 76.99%
% to ITM: 10.66%
Probability of expiring ITM: 4.82%

Please view my disclosure on the bottom of this blog.

Trade Idea: June 09 Puts / Calls

There are only 24 days until June expiry, and I don't think that option premiums may increase enough to make it worthwhile placing another put trade. I have been looking at the 1100 (110) puts for .15 or so. The NDX has a tighter spread, while the MNX bid / ask is too wide. They are app. 22% otm - which is usually far enough out of the money, but I am afraid of a reversal which may take the index down uncomfortably close to the 1100 (110) strike. On the call side, thinking that the index is due for a breather, the 1550 (155) calls can be sold for about .23 and are 10% out of the money. I typically don't like placing call trades because in order to bring in enough premium they have to be sold much closer to the index than I like.

Technically speaking, the index is bumping up against its previous high of 143 and is still hovering around its 200 dma, unable to strongly advance above it, so some sort of pullback may be coming. The question is how soon and will it increase premiums enough.

May 2009 Results:

Trade Placed: June 2009

On May 15th, I sold to open 1 NDX June 1050 put, 22.51% otm. I am still expecting the market to take a breather and decline somewhat and with only 34 days until expiry, I was also looking to lock in premium before it evaporated. The VXN still is not helping out, maintaining its place below 40 at 33.14. If the market does decline further as I expect, I will look to sell either another NDX put or several MNX puts at 1050 (105) or lower, depending if premiums jump or not.

Index level: 135.69
Sell to open: 1 June 09 1050.00 Put
Credit received: .22
Initial Margin req.: $10,502.50
Commission: $1.25
Net credit: $218.75
Days to expiry: 34
Simple return:2.08%
Yield: 22.36%
% to ITM: 22.51%
Probability of expiring ITM: 3.92%

Please view my disclosure on the bottom of this blog.

Weekly recap: 05/04/09 - 05/08/09

Weekly Range:

Open 140.77
High 143.57
Low 137.74
Close 139.42
Point Change -0.24
% Change from last week close -0.17%

MNX managed to close the week on a down note for the 1st time in 9 weeks! VXN likewise is stumbling lower once again, however it is finding support on several points which mark the highs from mid 2007 to mid 2008. MNX has bumped up against its 200dma and has paused - the problem now is figuring out if its pausing before heading higher, or pausing before it heads down. With the bank stress test over - and investors bidding up the financials higher and higher, fewer people becoming unemployed, and successful treasury sales last week, it seems like the economy is on track for a quick recovery - yeah right! This market is way over extended and due for a pullback. I do agree that most of the really bad news is out already, so I don't think that MNX will revisit its March lows - at least any time soon (those vicious downtrends aren't going to be repeated). Technically, I see support at 130 or so (this also happens to be right around the 50 and 100 day averages). Lower than that support lies in the 115 - 117.50 range. Early in the week I plan to sell a NDX 105 put - as of tonight the mark is about .25 - this would equate to a yield on 10k margin of about 21% and a simple return of about 2.15%. A strategy I am considering is to sell the NDX put early on (about seven weeks prior to expiry) then come in later and sell several of the MNX puts at the same strike - hopefully for a better price, once the index falls further. As I had commented in an earlier post the falling VXN is decreasing put premiums for options 25-30% otm and with 30 days until expiration, so I am having to sell put options with more time until expiry and only about 25% otm in order to bring in enough premium. However, the falling VXN also indicates a lessening of fear in the market, which in actuality means that the odds of a large and quick market pullback are growing less likely than before.

The May 97.5 put options that are still held are likely to remain otm (expiry is just 4 days away) - a yield of 18.40% in just 30 days. Hopefully every month is like that.

Trade closed: May 2009

I closed out the May 155 calls today for .03 - I planned on closing them at .05 but waited another day to see if I could get a lower price. With the release of the stress test at 5pm, I didn't want to take the chance that the markets takes off tomorrow. For a cost of $30, I don't mind taking that risk off the table. I plan on placing a June put trade soon - hopefully in the next day or two some downside momentum comes back into the market and increases premiums. I am feeling better that the March lows wont be re-tested so I may put on a 100 - 104 strike trade. I'm also thinking that in order to save on commissions, I may sell the NDX (MNX's big brother - the MNX is 1/10th of the NDX). Selling 1 NDX put costs me 1.25. So if I wanted to sell 15 MNX contracts I would pay $18.75, but if I sold 1 NDX and 5 MNX options, I would pay $1.25 plus $6.25 or a total of $7.50, saving $11.25 in the process.

Index level: 138.98
Buy to close: 10 May 09 155 Call
Cost to close: .03
Initial Margin req.: $3,410.00
Commission: $0.00
Net debit: $30.00
Profit: $147.50
Days open: 22
Simple return: 4.33%
Yield: 71.84%
% to ITM: 11.53%

Weekly recap: 4/20/09 - 4/24/09

Weekly Range:

• Open 133.02
• High 137.89
• Low 130.39
• Close 137.33
• Point Change +1.94
• % Change from last week close +1.43%

MNX remained just about unchanged last week - good for wasting away the premium of the sold options. VXN traded below its recent range, setting up for more decline ahead or a bounce back into its range. With 20 days left until expiry, it is unlikely that I will be able to place any more short May MNX trades, especially with the decrease in volatility. However, due to the VXN decrease, I will start looking for June puts to sell in order to capture higher premiums. As mentioned in my previous post, in order to sell puts 25-30% otm and receive adequate premium, I will need to sell them more than 30 days out. June options have 55 days until expiry, so if I wanted to sell 25% otm, I could sell the 102.5 for .60 or so, but remember there is more time in the trade for the index to decrease and come closer to the short strike. However, the lower VXN is indicating a decrease in volatility, so theoretically the index should be less likely to fluctuate so widely. Also, the 104 level marked the March low, so that should provide support. As I have been predicting for many MNX points now, I still expect a pullback in this market advance - if timed correctly this may provide increased premium in puts I may want to sell. Also, by selling an option for .60, I could always unwind the trade for .20 - .25 if I felt that I should. This way I could capture more than half the premium I took in and not have to wait until expiry to keep the full premium.

April 2009 Results:

Trade Placed: May 2009

On April 15th, I sold to open 10 May 09 155 calls, 17.74% otm. At the time, I was expecting the market to take a breather and decline somewhat and with less than 30 days until expiry, I was also looking to lock in more premium before it evaporated. However, it is impossible to predict with any accuracy where this crazy market will be at any point in time, so with that in mind if the market doesn't head lower by a good amount, I will look to close the trade - I've been bitten in the past for not selling options far enough otm, so I will look to limit my risk on this trade by closing the trade for a nickel when possible.

Index level: 131.65
Sell to open: 10 May 09 155.00 Calls
Credit received: .19
Initial Margin req.: $3,410.00
Commission: $12.50
Net credit: $177.50
Days to expiry: 29
Simple return: 5.21%
Yield: 65.51%
% to ITM: 17.74%
Probability of expiring ITM: 3.45%

Please view my disclosure on the bottom of this blog.

Trade Placed: May 2009

Today I sold to open 15 May 97.50 puts. With only 30 days until expiry and the VXN now at the low end of its range of the last few months, I decided I should sell this strike in order to take in premium before it evaporated. The margin requirement on this trade is higher than I normally like, but with lower put premiums for the front month becoming the norm, I expect the margin requirement to sell options 25-30% otm will increase, as the margin requirement is calculated by how far otm the sold option is. Essentially, I will need to sell puts that are closer to the strike than I would like, in order to receive at least .15 per option. No doubt this is a function of the decreasing level of the VXN. For the June contracts I may look sell puts when there are 40 or so days until expiration in order to capture a larger premium. However, allowing more time on the trade also increases the chance of the market making a deep retracement which would put the short strike uncomfortably close to becoming itm.

Index level: 133.42
Sell to open: 15 May 09 97.50 Puts
Credit received: .16
Initial Margin req.: $14,632.50
Commission: $18.75
Net credit: $221.25
Days to expiry: 30
Simple return: 1.51%
Yield: 18.40%
% to ITM: 26.26%
Probability of expiring ITM: 3.04%

Please view my disclosure on the bottom of this blog.

Weekly Recap: 4/06/09 - 4/09/09

Weekly Range:

• Open 130.65
• High 134.17
• Low 126.88
• Close 134.03
• Point Change +4.60
• % Change from last week close +3.55%

For another week in a row, the MXN has increased and the VXN has decreased. The higher highs and higher lows are making it difficult to put on May puts that are at least 25% otm. I still believe the market is due for a pullback, and when that occurs, I will trade short the May puts - just not sure yet what strike I will trade - the strike will depend on whether the pullback is news driven and deep, or just a shallow technical decline. With only 31 days until May expiry, the window for selling the puts at a reasonable price is closing. Meanwhile, the short April 91 puts have just 3 days until expiry and are 32% otm - remaining otm will provide the third month in a row of profits.

Weekly Recap: 3/30/09 - 4/03/09

Weekly Range:

• Open 123.09
• High 131.64
• Low 120.51
• Close 131.62
• Point Change 6.47
• % Change from last week close +5.17%

Last week MNX made a decisive move above its 100dma, gapping up above the 125 level and remains 26% higher than its March 9th lows. I believe that after a run of that magnitude in 3 weeks, the MNX is due for a pullback, potentially to the 115 level. Earnings season begins next week and it is expected to be bad, further clarifying the need for a general market pullback. The VXN still remains range bound in the lower 40's and hasn't helped to pump up option premiums. With 38 days until May expiry, I am looking to sell the May 90 puts for .25. Although the puts now go for slightly less than .25, the pullback that I expect to happen should get my order filled nicely. The April 91 puts I am short remain 30% otm and with only 10 trading days left in their life, they should expire otm as expected.

Trade Placed: April 2009

On today's afternoon dip, I got filled on the April 91 puts at .16 (the 90 puts I wanted to sell just didn't bring in enough premium). I feel comfortable on the way the market sold off then rallied to a positive close. I think that at least for the short term, the market wants to go higher. The margin requirement on this trade is higher than I normally like, but the trade off is that there is only 22 days left in the life of the option until expiry.

Index level: 120.80
Sell to open: 15 Apr 09 91 Puts
Credit received: .16
Initial Margin req.: $13,650.00
Commission: $18.75
Net credit: $221.25
Days to expiry: 22
Simple return: 1.62%
Yield: 26.89%
% to ITM: 24.67%
Probability of expiring ITM: 2.90%

Please view my disclosure on the bottom of this blog.

Trade Closed: April 2009

I closed out the April 75 puts today for .03 - I wanted to free up the margin since the trade has made 88% of its max gain in just 14 days. Since I use ThinkorSwim, I don't pay a commission to close out trades for .05 or less, so I only gave up $45. I am trying to place another 15 contract trade at the 90 strike for April for .15 (27 % otm with 23 days until expiry and a 24% yield). The Geitner TALF plan has sent the market skyrocketing, and I am not sure that the market will provide much time (if at all) to sell more April puts and receive a fair amount of premium for them.

Index level: 124.50
Buy to close: 15 Apr 09 75 Puts
Cost to close: .03
Initial Margin req.: $11,265.00
Commission: $0.00
Net debit: $45.00
Days open: 14
Simple return: 2.63%
Yield: 68.56%
% to ITM: 39.76%

Weekly Recap: 3/16/09 - 3/20/09

Weekly Range:

• Open 117.73
• High 122.45
• Low 114.47
• Close 118.72
• Point change +1.87
• % Change from last week close +1.60%

Has the rally ended? The MNX has rallied about 18% from its intraday low on 03-09 and has run smack into its 50 dma, breaching it by a few points, then retreating down to it on Friday. The VXN ran into its 50 dma on Friday and held its ground. With Congress changing the rules again with the bonus tax, its doubtful many will be willing to risk putting their money to work in the market at this point. Also, after its run, the market is ready for a rest. This is good for me as with less than 30 days until April expiry and a falling market, the prices of the otm April puts will increase. I still look to sell the April 85 puts sometime this week.

March 2009 Results:

Weekly Recap: 3/09/09 - 3/13/09

Weekly Range:

• Open 105.89
• High 117.05
• Low 104.05
• Close 116.85
• Point change +10.38
• % Change from last week close +9.75%
  

MNX rallied for the week and managed a respectable gain. However, is this just a bear market rally that will be beat back down in the coming week? After a 4 day 10% rally, the market no doubt will be looking for a rest and does anyone really believe that we have seen the absolute bottom of this crisis? Hardly! Since I am short puts for March and April, the week's gain has helped the puts to lose value (resulting in profit for me). While this is just what I want to happen, it has also decreased the premium I could receive for other April strikes. The VXN has dropped about 14% on the week, decreasing the premium available on put options. However, the VXN is sitting right on its 200 day moving average that its held above since September, so I think it may attempt a rally next week. Also, in the coming week I will look to sell more April puts. There are only 33 days until April expiration, so now is the time I prefer to place trades since time decay will soon kick in, eating away at the premium of the put options. I still want to keep the short strike about 30% otm, so as of today I would look to sell the April 85 strike for about .22. If the market should start the week out on a down note, I would look to possibly sell a lower strike depending on the premiums available.

The March options I sold have only 5 days left until expiration and I expect to keep the full premiums I have received for them. If so that will make month 2 of gains for this strategy - I just wish I would have sold more of them!

Trade Placed: April 2009

Today I sold April puts. The market finally has gotten its rally and the lack of any movement in the VXN the past few weeks made me place the trade before the 75 strike lost too much of its premium. If the market continues on its upward path or remains about where it is now, these puts should remain safely out of the money. I sold 15 contracts, rather than the usual 10, because the 75's were so far out of the money.

Index level: 108.36
Sell to open: 15 Apr 09 75 Puts
Credit received: .24
Initial Margin req.: $11,265.00
Commission: $18.75
Net credit: $341.25
Days to expiry: 37
Simple return: 3.03%
Yield: 29.88%
% to ITM: 30.79%
Probability of expiring ITM: 3.75%

Please view my disclosure on the bottom of this blog.

Weekly Recap: 3/02/09 - 3/06/09

Weekly Range:

• Open 109.90


• High 112.47


• Low 104.37


• Close 106.47


• % Change from last week close -4.68%
  

MNX closed down roughly the same percentage as last week, but still managed to hold above the November intra day low of 101.89. The VXN still is having problems getting out of the upper 40's, pointing to complacency in the market and possibly another week of a slow bleeding to come. The short March 84 strikes are still 21% otm with 12 days remaining until expiration - there are also 40 days until April expiration, so I am starting to look at selling April strikes.

Trade Placed: March 2009

Today's trading was range bound. I didn't get the sell off on the open I hoped for and the VXN was slowly bleeding out, taking the higher premiums along with it. With only 16 days until expiry, its the time where premium, volatility, and time decay all battle it out. If I didn't place a trade today, and the market were to rally or remain flat, there wouldn't be any premium left in the options to make them worth selling, or any worth selling would be closer to the money than I would like. Since the MNX managed to stay in the green today, I placed the trade at the close and got filled at a slightly lesser premium than the other 84 strike trade from last week (.17 vs. .19). The trade is still 22% otm, so I feel it's still a safe play.

Index level: 108.06
Sell to open: 10 Mar 09 84 Puts
Credit received: .17
Initial Margin req.: $8,430.00
Commission: $12.50
Net credit: $157.50
Days to expiry: 16
Simple return: 1.87%
Yield: 42.62%
% to ITM: 22.27%

Please view my disclosure on the bottom of this blog.

Trade Plan: March 09 Puts

Market volatility increased today as the VXN jumped 12.46% higher and the MNX lost 4.03 points, (3.61%) to close at 107.67. The need for the government to keep bailing out the financials is undoubtedly contributing to the poor mood of the market. However, traders can take this time as an opportunity to profit. The March 84 puts I sold last week for .19 can now be sold for .24 - (.18 bid x .30 ask) - or 26% more in premium. This is roughly a 2.71% simple return or 61.78% yield on $8,400.00 in margin for the next 16 days! The 84 strike is still 22% otm and the MNX is approaching support at the 102 level. Tomorrow, I will look to sell another 10 lot on the March 84's or lower depending on how the market opens. I am still looking to keep my short options at least 20% otm. Listening to tonight's financial shows, it seems there is some agreement that the market is oversold and a bear market rally is not out of the question. That would work out perfectly for the short puts - the market would rally and drive down the premium left in the puts right before expiration, safely putting them further in the clear.

Marks as of 4:00 pm (MNX = 107.67)
87.50_.40
85.00_.31
84.00_.24
82.50 _.22
81.00 _.21
80.00 _.16

Please view my disclosure on the bottom of this blog.

Weekly Recap: 2/23/09 - 2/27/09

Weekly Range:

• Open 118.01


• High 118.38


• Low 111.22


• Close 111.70


• % Change -4.75%

MNX closed on its low for the week which is never a good sign and may point to further selling to come. The next area of support is the 101 area, or about 10% lower (this is also the area of the November lows). As Monday may be a volatile day due to the index closing on its low, I will look to sell a few more February options before theta makes them no longer worth selling.

Trade Placed: March 2009

The market opened up higher today, removing much of the premium the MNX puts received yesterday. I waited to see if the index would break through its intra day resistance level of 115.50 before placing the trade. With the index rising, it was hard to get a fair fill on the trade, but I got filled as follows:

Index level: 115.37
Sell to open: 10 Mar 09 84 Puts
Credit received: .19
Initial Margin req.: $8,450.00
Commission: $12.50
Net credit: $177.50
Days to expiry: 23
Simple return: 2.10%
Yield: 33.33%
% to ITM: 27.19%

I would have liked to sell the 82.5 strike or lower, but the premiums they were selling for today didn't make them worth trading. The market bounced from its oversold level today - hopefully it will last a few days. Bernanke calmed the markets by saying the banks wouldn't need to be nationalized and tonite Obama gives his unofficial State of the Union address. I am sure today his staff was busy removing words like catastrophe, depression, armageddon, and clusterf$&k from his speech - hopefully he's learned his lesson and will try to present a more hopeful outlook on the economy. With limited time left until expiration, and theta taking over, it may not be possible to sell more March puts that are comfortably both far enough out of the money and bring in enough premium at the same time. I may look into selling more of the 84 puts, depending on how the market behaves in the next few days (how many 1 day gains were taken back in a day or so in the past...). There is still a week or so before I would consider selling the April strikes as I dont like to leave too much time on the table in case market volatility increases again - the April 75's look nice.....................

Please view my disclosure on the bottom of this blog.

Trade Plan: March 09 Puts

Looks like we may get that pick up in NASDAQ 100 Volatility (VXN) to allow for higher premiums in the puts I am looking to sell. The VXN is up about 7% today to 50.00 and the mid fifties looks entirely reachable. The Sep 08 high was 86.52 (intraday).

The MNX has support around the 113 level - a blow out lower could lead to the next support level at around 110 - 109 and a break below that could lead to a test of the Nov 08 lows of 101-103 (but lets call it about 100). I am betting on a re-test. I'm looking to sell the Mar 82.5 puts (or lower) - currently these are 27% out of the money. The 82.5's would bring in a .32 credit on about 8,265.00 in margin with 23 days remaining until expiry. Return would be 3.8% or a yield of 61.40% (59.00% including commissions on a 10 lot) - not bad!

I don’t think the market is in such good shape - the stimulus plan is out and we should know the details as they pertain to the financials this week some time - hopefully Geitner doesn't mess it up this time. That 3 letter insurance firm is probably going to need more money from the Fed - I worry that there is no way to stop the snowballing effect of unemployment - mortgages - consumer spending - layoffs - etc....etc….etc…. Is there another blow up out there coming our way?

Marks as of 4:00 pm (MNX = 112.80)
82.50 _.32
81.00 _.29
80.00 _.25
77.50 _.20
75.00 _.16

February 2009 Results:

The VXN:

The VXN is a measure of the volatility of the NASDAQ 100 Index. Changes in the VXN help determine option premiums of the MNX (a higher VXN means increased option premiums, particularly in puts, while a decrease will generally mean lower premiums). Today's change in the VXN of 10.18% (closing level of 47.50), while below the October VXN high of 86.52, marks the largest volatility increase in more than a month. Generally when I look to put on a new trade, I gauge the current level of the VXN to see if waiting for an increase will provide a few dollars more of premium. I am looking to place a few March put trades, possibly in the 77.50 - 82.50 range (30.5% - 34.5% out of the money with 30 days to expiration). As of today, selling 10 contracts would produce a credit of between $180.00 ($7,750.00 margin) - $280.00 ($8,255.00 margin). The simple return would be 2.32% and 3.40% respectively. The money market equivalent yield would be 28.5% and 41.5% respectively. However, with today's turbulent market, I may wait a day or so to see how the market plays out - just in case I can increase the premium I would receive, or receive the same premiums, but for a lower strike. Please view my disclosure on the bottom of this blog.

Why I trade the MNX:

I have been trading the MNX for over a year and a half now. I began trading vertical spreads and iron condors on it, which at the time worked out great - the index was continually climbing and I could sell options that were 10% or more out of the money and have them expire worthless - pretty safe right? But then came the summer of 2008 and the index proved that it certainly could move 10% in a small amount of time. It wiped out all of my profits I had made trading the MNX ! But, now that I think back, it also gave everyone a gift - increased volatility. I began to think why trade verticals or iron condors, where in order to obtain a reasonable profit, I would have to trade options that were closer to the index than I liked. I decided to trade naked options on the index which allowed me to sell strikes that were sometimes 30 - 35% out of the money! Of course, this comes with increased risk (relatively speaking) and higher margin requirements, but the relative safety of selling so far out of the money appealed to me.

There are 4 primary reasons I like to trade this index:

• very liquid strikes
• large open interest
• increased volatility allows for selling far out of the money options
• acceptable premiums for my trade methodology

Using my February trades I had posted earlier, the 77.5 put was placed as the index was trading at about 116, so at the time the 77.5 strike was about 33 % out of the money with only 27 days until expiration (I prefer not to place trades until about 6 weeks remaining until expiration in order to take advantage of the time decay of the options). The 82.5 put was also about 33 % out of the money and had 42 days until expiration. The premiums on the trades, respectively, were $150.00 and $270.00 and the margins on each at the time in my Think or Swim account were roughly $7500.00 (my future trades will have exact numbers). The simple return on margin is then calculated as ($150.00 + $270.00 / $7500 * 2) = $420.00 / $15,000.00 = 2.8%. 2.8% in roughly a month isn't too bad when you consider if you placed the same $15,000.00 margin in a "high yielding" money market account earning 2.40% interest, in a month (31 days) it would earn $35.47. This is generally the underlying premise of my trades - why earn very little interest in a money market, when a "reasonably" safe MNX trade can make 10 times as much in the same time period. Now, by reasonably safe I mean that the index is a comfortable distance away from my sold strike, always remembering that there is the chance that some extraneous event could occur, causing the sold strike to become dangerously close to becoming in the money, if not actually in the money. Now, there are ways to handle this type of event, should it ever happen, and I will post more on that in the future.

Current Trades expiring in February:

Here is a list of the trades I currently have open to expire February 19th:

• sold 10 MNX Feb 09 77.5 Put @ .15 (gross premium $150.00) - placed Jan 23, 2009


• sold 10 MNX Feb 09 82.5 Put @ .27 (gross premium $270.00) - placed Jan 8, 2009

I use Think or Swim as my broker (they are excellent.......more on them later) and I pay $1.25 per contract for commission. On a 10 lot trade, I pay 12.50. Please note, as I don't know the exact margin requirement on trade date, I estimate that it was about $7,500.00. Later, I will also explain my rationale for these trades. Please view my disclosure on the bottom of this blog.

A brief introduction of the MNX:

The MNX is a modified capitalization-weighted index composed of 100 of the largest non-financial securities listed on the Nasdaq Stock Market. It is 1/10th the value of the NDX index, so, for example, if the NDX index is at 1400, the MNX will be 140. It is European style, meaning that its options generally may be exercised only on the last business day before the expiration date should they become in the money. This is an advantage of this index, as it allows for the seller to wait out a move in the index, or to roll to another strike or month in order to avoid their option being in the money, and vulnerable to exercise. Trading in Mini-NDX options will ordinarily cease on the business day (usually a Thursday) preceding the day on which the exercise-settlement value is calculated (i.e. usually the 3rd Thursday of the month at market close). The exercise-settlement value for MNX options is computed by dividing the NDX settlement value by a factor of 10. The settlement values as well as much more in depth information can be found on the CBOE website.