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