June 2009 Results:

I was satisfied with the June contracts which I closed out early rather than let them expire. I chose to close them early since 2 of the 3 could be closed for .05. I would rather close the trade for .05 than run the risk, however unlikely, that some event would bring the market sharply down on the Thursday night prior to expiry and leave me unable to adjust the trade since expiry was on Friday morning market open. This would be the worst case scenario and closing the trade prior to expiry eliminates this risk. I also chose to close out the 1550 call because the market hadn't taken the turn down that I had been anticipating. I didn't want to risk having the trade turn into a large money looser, wiping out a good portion of my gains year to date - I have had that happen in the past when I traded bear call and put spreads (another reason I now trade naked index options). Going forward I will provide the monthly returns in spreadsheet format and hopefully soon will have past periods added as well.

Trade Closed: June 2009

Today I closed the June 2009 NDX 1150 put for .05. The trade was closed to lessen overnight risk and free up margin. In addition to the usual criteria I list, I will now start showing what the same margin over the same amount of time would have earned in a money market. The rate I will use to compare with will be the rate I receive on my "high yielding" money market account.

Index level: 1458.00
Buy to close: 1 Jun 09 1150 put
Cost to close: .05
Initial Margin req.: $10,502.50
Commission: $0.00
Net debit: $5.00
Profit: $148.75
Days open: 19
Simple return: 1.42%
Yield: 27.21%
% to ITM: 21.12%

Mmkt equivalent earnings @ 1.55%: $8.47

Open Trade Recap: July 2009

Below is a chart showing the NDX as well as its major support levels, major moving averages, and strikes I currently have sold for July 2009 options. The closest strike to the index (1200) is 17.58% otm. As I had said in my previous post, the gap up on June 1st has left support at about the 1439 level. NDX tested this support today and closed higher. At this point in time I don't believe this downturn is over, maybe just pausing briefly, so I am looking at 1425 to hold as the next support level. However, I still don't think this downturn will turn into the anything like the daily 5% swings the market had at the end of last year.

Trade Placed: July 2009

On June 16th I sold to open 1 NDX July 1200 put for 4.40. The VXN jumped and I decided to take advantage of the increased premium inherent in the put strikes. I chose the 1200 strike because it is below multiple support levels and was 17% otm with 30 days until expiry. This is generally closer to the index level than I like, but I believe any pullback will be a shallow one that won't cause a large increase in the VXN. I think there is just too much money waiting on the sidelines to get into the market.

Index level: 1450.54
Sell to open: 1 July 09 1200 put
Credit received: 4.40
Initial Margin req.: $12,005.00
Commission: $1.25
Net credit: $438.75
Days to expiry: 30
Simple return: 3.65%
Yield: 44.47%
% to ITM: 17.27%
Probability of expiring ITM: 7.23%

Today I sold to open 1 NDX July 1025 put for 1.05. The 1025 strike lies below the March low of 1040 and was roughly 30% otm. I don't believe the market is going to re-test the absolute lows (at least within the nest 29 days), so I believe this strike is safe to sell.

Index level: 1460.58
Sell to open: 1 July 09 1025 put
Credit received: 1.05
Initial Margin req.: $10,255.00
Commission: $1.25
Net credit: $103.75
Days to expiry: 29
Simple return: 1.01%
Yield: 12.73%
% to ITM: 29.82%
Probability of expiring ITM: 1.90%


Please view my disclosure on the bottom of this blog.

Trade Placed: July 2009

On Friday June 12th, I sold to open 1 July 2009 1125 put. I still feel the market is due for a pullback, but I don't think it will be a vicious pullback - more like a slow, drawn out reversal with probably little participation from the VXN, especially since so many are waiting for "the pullback" so they can jump back in. I am also thinking of selling another July put, but one only about 17% otm - currently the 1225 put can be sold for 3.50 or so. Again, I feel the pullback will be shallow, and there is plenty of support at 1435 (the June 1st gap up) and then again at about 1425 and 1340.

Index level: 1476.60
Sell to open: 1 July 09 1125 put
Credit received: 1.95
Initial Margin req.: $11,237.50
Commission: $1.25
Net credit: $193.75
Days to expiry: 34
Simple return: 1.72%
Yield: 18.51%
% to ITM: 23.81%
Probability of expiring ITM: 2.89%

Please view my disclosure on the bottom of this blog.

Trade Closed: June 2009

On Friday I closed the June 1550 call for 2.20 after selling it for 1.65. This resulted in a loss of $57.50 including commissions. I closed the trade since the option was only 4.8% otm with a week left until expiry. The index could have easily jumped higher by more then 5%, putting the option itm. Typically to buy back an option during expiry week, you will have to pay the ask price on a wide spread. I didn't mind the small loss since it was the first loss since February. Also, at one time last week the option was selling for $8 and change, resulting in a loss (if I had closed it then) of about $700 or so! That's the danger involved in selling close to the money options - when I originally sold the option, it was 11% otm, but in this type of rising market, its best to follow the trend and not try to predict when it will turn. Of course, it will turn at some point, but I will try to take advantage of it by selling puts that hopefully have increased premium built into them from a rise in the VXN.

Index level: 1479.50
Buy to close: 1 June 2009 1550 call
Call Cost to close: 2.20
Initial Margin req.: $3,528.50
Commission: $1.25
Net debit: $221.25
Loss: $57.50
Days open: 16
Simple return: -34.85%
Yield: 0.00%
% to ITM when closed: 4.77%


I also closed out the June 2009 1050 put for $5.00. I closed this trade down to free up margin and remove the risk involved with holding this essentially worthless option for another week. For the $5.00 it cost to close, I'll sleep easier. Comparing this to a "high yielding" money market account yielding 1.40%, in the same amount of time and on the same margin, I would have earned $11.25! I'll stick with selling 22% otm options instead!

Index level: 1478.00
Buy to close: 1 June 2009 1050 put
Call Cost to close: .05
Initial Margin req.: $10,502.50
Commission: $0.00
Net debit: $5.00
Profit: $213.75
Days open: 28
Simple return: 2.04%
Yield: 26.53%
% to ITM when closed: 28.96%

I am still short the June 1150 put which I may also close out for $5.00, again to remove the risk involved in the option.