Trade Closed: Sep 2009

Today, I was filled on closing 1 Sep 2009 1250 put at .05 - hopefully the other will get filled on Monday.

Index level: 1681.46
Buy to close: 1 Sep 09 1250 put
Cost to close: .05
Initial Margin req.: $12,505.00
Commission: $0.00
Net debit: $5.00
Profit: $143.75
Days open: 24
Simple return: 1.15%
Yield: 17.48%
% to ITM: 25.66%
Mmkt equivalent earnings @ 1.40%: $11.51

Trade Placed: Oct 2009

Yesterday I sold to open 1 Oct 1300 put for 1.55 with 35 days until expiry. I feel we are close to a breakdown in the NDX, but wanted to place a trade to take in the premium available at that time, and still with more than 30 days until expiry. I hadn't placed the trade earlier because I want to avoid selling a put for "x", then seeing several days later the market has declined, the VXN has risen, and the same put can be sold for "2x" - still safely 20% otm, but now worth twice as much. At some point the market will pull back and richer premiums will be available. Since there are close to 30 days left until expiry, time decay will start eating away at the put premiums available for 20% otm options, so I placed 1 trade and hopefully will be able to sell several other strikes as the market pulls back.

Index level: 1685.46
Sell to open: 1 Oct 09 1300 put
Credit received: 1.55
Initial Margin req.: $12,997.50
Commission: $1.25
Net credit: $153.75
Days to expiry: 35
Simple return: 1.18%
Yield: 12.34%
% to ITM: 22.87%
Probability of expiring ITM: 2.43%
Mmkt equivalent earnings @ 1.40%: $17.42

Please view my disclosure on the bottom of this blog

Trade Idea: Oct 2009

I have been watching the Oct 1200 strike to sell. As of today's close it is 25% otm and can be sold for about $1.95 - actually during the day it was as high as $2.65, but the volatility level started to slide and took premium with it. It would yield about 14% - not great, but I am willing to trade that the NDX isn't likely to tumble 25% in the next 6 weeks. I didn't sell it today as the unemployment report comes out tomorrow morning. This week it seems that the market is reacting poorly to better economic news - the ISM reached above 50 and a somewhat better ADP jobs report was released (however I think that even though fewer jobs are being lost, they are still being lost). Many are calling for the unemployment rate to jump higher to 9.6%, but remember last month the rate actually fell (although it fell not because more people found jobs, but because their benefits ran out and they were no longer included in the official number). Should a worse than expected report come out, the VXN will spike higher, increasing the premium I can sell the 1200 put for. If a stronger report comes out, I may wait until after the holiday to sell put options - of course at that point I will wish I had just sold the 1200 for $2.65 today.

As for the options I am still short which expire in 2 weeks, the Sep 1300 is 19.05% otm and the 1250's are 22.17% otm - I have my buy to close on them for .05. Once the 1250's are bought back, it will free up the $25k in margin which I can put to work in Oct options. The net pnl for the month will be about $560.00 - the second best month so far.

Trade Placed: Sep 2009

Today I sold 2 NDX Sep 1250 puts, about 21% otm. The VXN gave back about half of its gain from yesterday, taking premium along with it. At the close yesterday the 1250's were going for about 2.10 or so, so about 30% of the premium from yesterday evaporated today. Since the premiums available had decreased, I sold 2 contracts to take in a large enough premium to make the trade worth doing. I feel comfortable that time decay will overcome any downward move in the NDX between now and expiry Sep 17th. Most of the pundits are predicting a 10% downward move before buyers step back in and run the market higher. There are also several areas of support for the market below its current level. Using Fibonacci retracements the 38% level lies at 1407 - or about 11.8% below its close and the 50% lies at 1340 - 15% below. Coincidentally, these retracement levels have been tested as support before, so they should hold up again.

Index level: 1589.44
Sell to open: 2 Sep 09 1250 put
Credit received: 1.50
Initial Margin req.: $25,010.00
Commission: $2.50
Net credit: $297.50
Days to expiry: 30
Simple return: 1.19%
Yield: 14.47%
% to ITM: 21.36%
Probability of expiring ITM: 2.79%
Mmkt equivalent earnings @ 1.40%: $28.78

Please view my disclosure on the bottom of this blog.

August 2009 Results:

I was only able to place 2 trades for Aug expiry and also had to deal with exceptionally low premiums due to the falling VXN. This months profit was just $312.50 - the second smallest since February. I have been calling for a pause in the market for some time now, and yesterdays pullback seems like it will be less than hoped for. The only way to overcome such low premiums is either to sell more contracts 20% otm with about 30 days to expiry, or to sell contracts about 6 weeks out, for a higher premium. However, I am glad to see I have had only 1 small loss since February and as long as the NDX / MNX continue to climb and avoid another black swan event, it is likely that this strategy will contribute about $6,000.00 to my pnl for the year.

Trade closed: Aug 2009

The gtc order I had in to close the Aug 1300 put was filled today:

Index level: 1573.40
Buy to close: 1 Aug 09 1300 put
Cost to close: .05
Initial Margin req.: $12,992.50
Commission: $0.00
Net debit: $5.00
Profit: $123.75
Days open: 19
Simple return: .95%
Yield: 18.30%
% to ITM: 17.38%
Mmkt equivalent earnings @ 1.40%: $9.47

Trade update: Sep 2009

The long awaited pullback - on volume - finally came. Today the VXN increased 2.35 points or 9.31% while the NDX lost 46.69 points or 2.90%. I am watching the Sep 1300 and 1250 puts for a trade - the 1300 put can be sold for about $3 and the 1250 for $2. I don't view this pullback as caused by another black swan event or financial crisis, rather just as an overdue pullback after the recent market highs - profit taking has been long overdue. There are multiple levels of support below, which are sure to draw in more buyers than sellers, at least for a time. I don't believe this pullback will be too quick and powerful, more like slow and drawn out, as people realize that the economic realities of the day don't support such high market levels. In the mean time, I plan on placing trades tomorrow to take advantage of the higher volatility premiums that can be found in September puts that are 20% or so otm.