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!!