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.