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%

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