Trade Placed : August 2009

On Friday I sold the Aug 1300 put for $1.30. As the market opened down, as feared the VXN index opened down as well. Within a few minutes of trading it quickly became apparent that even a lower NDX couldn't help the volatility index from diving lower and lower. With only about 25 days until expiration, it is highly unlikely that it will be worth placing any further Aug trades due to a lack of premium. The market's uptrend looks like it may continue for a while. I am hesitant to sell the call side (remembering the Jul 1550 call), because this market seems like whether the news is good or bad, it will continue to climb.

Index level: 1579.60
Sell to open: 1 Aug 09 1300 put
Credit received: 1.30
Initial Margin req.: $12,992.50
Commission: $1.25
Net credit: $128.75
Days to expiry: 27
Simple return: .99%
Yield: 13.40%
% to ITM: 17.72%
Probability of expiring ITM: 2.28%
Mmkt equivalent earnings @ 1.55%: $14.90

Please view my disclosure on the bottom of this blog

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.

Trade Placed: Aug 2009

With INTC's blowout earnings last night and today's rally in the markets, the volatility level has been whacked down to its lowest level in a year (25.28). I was able to sell the 1200 strike (20% otm) for just shy of 2 bucks. The NDX is hovering right at its recent highs so I believe it will either break higher in the coming days (depending on the general attitude towards the earnings reports) or come back in due to the resistance that these levels represent. Either way, there are now defined areas of support and resistance to rely on (1500 res. / 1400 / 1350 supp.). In the coming days I will look to place more put trades, hopefully for more premium if the VXN level increases.

Index level: 1497.60
Sell to open: 1 Aug 09 1200 put
Credit received: 1.95
Initial Margin req.: $12,105.00
Commission: $1.25
Net credit: $193.75
Days to expiry: 36
Simple return: 1.60%
Yield: 16.23%
% to ITM: 19.87%
Probability of expiring ITM: 3.59%
Mmkt equivalent earnings @ 1.55%: $18.51

Please view my disclosure on the bottom of this blog.

July 2009 Results:

I am pleased with the July results as I managed to bring in the largest premium amount so far. I contribute this to the fact that 4 trades were placed instead of the usual 2 or 3 and to the large premium received from the 1200 strike put which brought in $322.50. The timing of this trade was particularly good as I managed to place the trade just as the VXN level increased, capturing the increased premium, and closed the trade 9 days later once 75% of the max profit was achieved. I chose to close the trade at this point because the strike was the closest to the money, and remembering that this trading strategy is "low risk", closed the trade once 75% max return was achieved, thereby locking in the quick profit and removing the trades risk.

As I stated in my previous post, earnings season is underway and I expect a rise in the volatility level, increasing the put premiums for August. It seems the market in general is beginning to accept that the economic recovery is further off than the "green shoots" predicted. Hopefully the earnings reports back this up, and the market turns down. I had spoken about selling the Aug 1125 put for about 4.40, but with today's decrease in volatility it now trades for only about 1.90. It is still comfortably 22% otm, so tomorrow I may try to sell it for 2.00 on any uptick in volatility.

Trade Closed: July 2009

Today, I closed the remaining July trades for .05 each, removing the risk involved in each (no commission charged by ThinkorSwim).

Index level: 1405.00
Buy to close: 1 July 09 1025 put
Cost to close: .05
Initial Margin req.: $10,255.00
Commission: $0.00
Net debit: $5.00
Profit: $98.75
Days open: 27
Simple return: .96%
Yield: 13.02%
% to ITM: 27.05%
Mmkt equivalent earnings @ 1.55%: $11.76

Index level: 1405.00
Buy to close: 1 July 09 1125 put
Cost to close: .05
Initial Margin req.: $11,237.50
Commission: $0.00
Net debit: $5.00
Profit: $188.75
Days open: 31
Simple return: 1.68%
Yield: 19.78%
% to ITM: 19.93%
Mmkt equivalent earnings @ 1.55%: $14.79

Index level: 1405.00
Buy to close: 1 July 09 1100 put
Cost to close: .05
Initial Margin req.: $11,505.50
Commission: $0.00
Net debit: $5.00
Profit: $223.75
Days open: 35
Simple return: 1.94%
Yield: 20.28%
% to ITM: 21.71%
Mmkt equivalent earnings @ 1.55%: $17.10

Trade Update: July 2009

There are 8 days left until July options expire. The closest strike to the money is the 1125 which is 20% otm. At this time, I feel comfortable that all 3 strikes will expire worthless, however I will look to close the strikes at .05 when possible. I am now looking to place an August put trade app. 20% otm - currently that would be the 1125 strike at a premium of $4.40. The VXN has risen about 16% since my last post and the NDX has lost about 4.5% and currently is sitting on its 200 dma - a point which may provide some amount of support or area of consolidation, but in the end I expect it to give way, allowing for a further drop in the index.

Earnings season began today and AA had more of the same "less bad news is good news". Things really get going next week when more companies begin to report (INTC on Tuesday, JPM Thursday, and a few transports thrown in as well - the transports should give some early indication as to how far off the economic uptick will be). I plan on waiting to see how the market reacts to the earnings before placing the trade, however, should the VXN begin to come in, I need to act quickly to lock in evaporating premiums.

Trade Update: July 2009

Below is a chart of the remaining open strikes as well as their % distance from becoming itm. With 15 days remaining until expiry, I expect these trades to remain safely otm. I do however plan to close them out at .05 when possible in order to take the risk associated with the trades off. If so, this months net will be about $850.00!

Considering today's poor sentiment numbers and Thursdays jobs report certain to show an increase in unemployment (I personally expect the unemployment rate to come in at 10%), I think we may soon get another break downward in the NDX and coincidentally a rise in the VXN. At that point I would look to start placing Aug 2009 trades. Depending on the premiums I can collect, I would look to place trades 20% otm. Currently that strike would be the 1175 which could be sold for about $4, but depending on the severity of the downward move, hopefully I can sell a lower strike for the same amount if not more.