Trade Placed: Dec 2009

On Friday I sold to open 1 Dec 2009 1425 put for 1.10. This past Wednesday I had closed out the Dec 1325 put in order to take December risk off the table. At that point I thought I might just let the remaining open Dec 09 1400 put ride as I didn't want to put more risk on the table into year end - why risk it? Then overnight Wednesday doubts surfaced as to whether or not Dubai might default on its debt. Markets in the US were closed Thursday for Thanksgiving, and the foreign markets were beaten down. I was glad I had closed out the 1325 put the day before as I thought if the Dubai issue got messy, the US market could become a safe haven of sorts, and the dollar would rally, driving down the US markets. Pre market futures on Friday in the US were down 50 on the Nasdaq and 300 or so on the Dow. As soon as the US opened however, the markets began to rise. By the end of the day the stock market ended down 154 points (-1.48%) on the Dow Jones and 38 points (-1.73%) on the Nasdaq. European markets had managed to close in the green and recover to their pre Dubai levels. I interpreted this to mean the crisis in the Middle East may not be as serious as people thought. With a 20% rise in the VXN and just 20 days until Dec expiry, I decided to sell the 1425 put (19.35% otm). I wanted to take advantage of the increased premium on 20% otm puts as well as the rate of time decay which will begin to kick in. The NDX is down just about 2% from its most recent highs on Nov 16th – another 5% or so decrease will still leave the index well above the 1425 and 1400 strikes I have sold short for December. In the meantime, I have placed sell to close orders for .05 on both remaining trades.

Index level: 1766.81
Sell to open: 1 Dec 09 1425 put
Credit received: 1.10
Initial Margin req.: $14,265.00
Commission: $1.25
Net credit: $108.75
Days to expiry: 20
Simple return: .77%
Yield: 14.07%
% to ITM: 19.35%
% Probability of expiring ITM: 2.13%
VXN level: 25.13%
Mmkt equivalent earnings @ 1.30%: $10.21

Please view my disclosure on the bottom of this blog!!

Trade closed: Dec 2009

On Wednesday Nov 25th, I closed out the Dec 1325 put for .30. I wanted to take the risk off the table and felt that the cost to close of .30 was well worth it. At the time, the trade had made 93% of its possible max profit. There were 22 days until expiry and didn't want to wait that long to free up my collateral.

Index level: 1793.75
Buy to close: 1 Dec 09 1325 put
Cost to close: .30
Initial Margin req.: $13,250.00
Commission: $1.25
Net debit: $31.25
Profit: $417.50
Days open: 28
Simple return: 3.15%
Yield: 41.07%
% to ITM: 26.13%
VXN level: 21.31%
Mmkt equivalent earnings @ 1.30%: $13.21

November 2009 results:

November turned out to be the most profitable month to date. I attribute this to the late October spike in the VXN which enabled me to sell the Dec 1250 put for a nice premium. Soon after, however, the VXN retreated back to its recent lows and remains stuck at the lower end of its trading range. This limits the premium I can sell puts 20% otm for. I would consider selling puts 15% otm, but with the year wrapping up I am becoming leary of what turn the market may take. I am especially worried about the weakness in the USD and when it may reverse, since the market seems to be rising as the dollar weakens. I think this may mean once we see USD strength, the market may turn lower, becoming uncomfortably close to 15% otm sold puts. However, should the market turn lower in the next few days, I would still look to sell puts 20% otm and possibly some Jan 2010 puts that I would close out when the market rose again. At this point, the premiums available for Dec options aren't high enough to risk selling further options and I would rather close the year with an additional $500 or so from the Dec puts I have already sold.