Trade Update: Aug 2009

Today's aftermarket does not bode well for tomorrows session. MSFT and AMZN are getting killed in the after hours session and the NDX futures (as of 10pm) are down about 25 points from fair value. Today's rally may well have put the nail in the coffin. Interestingly, during the day today I noticed that the VXN was actually in positive territory for the day, even though the NDX was up 2.50% - a sure sign that market players were probably adding to their protection (by buying puts for protection and gearing up for a pullback) and thus driving up the VXN. The 12 day rally is probably running out of steam - we will have to wait for tomorrow to see for sure (however at this time the Asian markets aren't showing any signs of a pullback).

The Aug 1200 put I am short is currently about 25% otm, and I doubt any market drop in the coming days will put that strike in danger. Should tomorrows pullback provide for increased premiums, I am thinking of selling the 1300 strike (19% otm - 15.06% yield) and lower. With just 28 days remaining until expiry, I feel comfortable selling that strike as there are multiple levels of support to fall back on. I just need the VXN to cooperate tomorrow and rise as more and more people become uneasy with their long positions and sell or buy put protection. Without the VXN increasing, it is unlikely that put options at least 20% otm will be worth selling. It would be disappointing to have a meager profit for the month after last months gain.