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.