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.

Trade closed: Nov 2009

Today the Nov 1375 put and one Nov 1400 put were filled at .05 (no commission at TOS) - tomorrow I expect the one remaining 1400 put to be filled as well.

Index level: 1805.80
Buy to close: 1 Nov 09 1375 put
Cost to close: .05
Initial Margin req.: $13,995.00
Commission: $0.00
Net debit: $5.00
Profit: $143.75
Days open: 45
Simple return: 1.05%
Yield: 8.48%
% to ITM: 23.86%
VXN level: 22.71%
Mmkt equivalent earnings @ 1.30%: $22.03

Index level: 1809.55
Buy to close: 1 Nov 09 1400 put
Cost to close: .05
Initial Margin req.: $13,995.00
Commission: $0.00
Net debit: $5.00
Profit: $83.75
Days open: 24
Simple return: .60%
Yield: 9.10%
% to ITM: 22.63%
VXN level: 22.89%
Mmkt equivalent earnings @ 1.30%: $11.96

I have been researching the extent to which each of the previous 7 rallies since May have climbed and it seems that the current rally from Nov 2nd has climbed just under 10% - the average rise being 9.88%. Does this mean the currcent rally is over extended and will soon pullback the average retracement of 6.06%? Possibly, as the low volume that has been driving this rally higher makes the move suspect. The VXN is also back down to the low point of its recent trading range around 23. Potentially, the market could be setting up for another pullback - if this does occur, I will be looking to sell further 1400 Dec puts (or lower) - the 31 days left until expiry will allow for juicy put premiums should the market endure the kind of pullback that occurred at the end of October when the NDX lost 7% in 5 trading days.

Trade Placed: Dec 2009

Yesterday, I sold to open 1 Dec 09 1400 put 22% otm. Now that earnings season is wrapping up, I am getting the sense that the market is feeling a bit topped out. The advance since the Nov 2nd low has been on low volume, and I don't see a catalyst for further advance at this time. Todays decline was on heavier volume than on any other day of the recent runup, other than the reversal day on Nov 2nd. The VXN is again at the lower end of its trading range - possibly setting up for a reversal and higher option premiums to be sold. Should a deeper pullback develop in the next few days, I would be looking to sell the 1400 or lower strikes. At this time, I am not planning to buy to close the Dec 1325 put, as it should stay safely otm until expiry in 35 days.

Index level: 1788.31
Sell to open: 1 Dec 09 1400 put
Credit received: 1.50
Initial Margin req.: $13,997.50
Commission: $1.25
Net credit: $148.75
Days to expiry: 36
Simple return: 1.07%
Yield: 10.87%
% to ITM: 21.71%
% Probability of expiring ITM: 2.42%
VXN level: 23.13%
Mmkt equivalent earnings @ 1.30%: $17.93

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

Trade Closed: Nov / Dec 2009

Today I closed a Nov 1400 put for .25 and the Dec 1250 put for .65. These were closed to free up collateral, and in the case of the Dec put, to take profits since the trade had made 82% of the max profit and still had 38 days left until expiry. In most cases, I follow this as a rule - once 75 - 80% of the max profit has been made in a relatively short time, close the trade to free up collateral and take profits, rather than waitng a few weeks to close the trade out for the remaining 20 - 25% of the profit. I do this to avoid locking up collateral for a prolonged period of time - it also allows me to look for another trade to place.

I have entered a gtc order to close the other Nov puts for .05.

Index level: 1762.29
Buy to close: 1 Nov 09 1400 put
Cost to close: .25
Initial Margin req.: $14,010.00
Commission: $1.25
Net debit: $26.25
Profit: $257.50
Days open: 10
Simple return: 1.84%
Yield: 67.09%
% to ITM: 20.56%
VXN level: 23.80%
Mmkt equivalent earnings @ 1.30%: $4.99

Index level: 1768.40
Buy to close: 1 Dec 09 1250 put
Cost to close: .65
Initial Margin req.: $12,495.00
Commission: $1.25
Net debit: $66.25
Profit: $302.50
Days open: 10
Simple return: 2.42%
Yield: 88.36%
% to ITM: 29.31%
VXN level: 23.53%
Mmkt equivalent earnings @ 1.30%: $4.45

Trade Placed: Dec 2009

On Friday Oct 30th, I sold to open 1 Dec 2009 1250 put for $3.70 at the close. The trade was placed to capture the elevated premium and to sell an option 25% otm. Again, I am not expecting a truly significant market pullback in the coming weeks. I believe this trade will remain otm until expiry. Also, there are multiple levels of support beneath, as well as hungry buyers waiting to get back into the market before year end.

Index level: 1677.13
Sell to open: 1 Dec 09 1250 put
Credit received: 3.70
Initial Margin req.: $12,495.00
Commission: $1.25
Net credit: $368.75
Days to expiry: 48
Simple return: 2.95%
Yield: 22.44%
% to ITM: 25.02%
%Probability of expiring ITM: 4.74%
VXN level: 29.81%
Mmkt equivalent earnings @ 1.30%: $21.35

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

Trade Placed: Nov 2009

On Friday Oct 30th, I sold to open another Nov 1400 put for $2.85. With the huge pop in the VXN (+ 17.36%), I definitely wanted to take in the premium available, and set to expire in 20 days. I believe that the run-up in the volatility level, while both expected and rational, is a little overdone. As I said in a previous post, it isn't like last September when the world was facing a financial crisis of unknown proportions. The market has simply had an un-supportable runup in economic expectations which are beginning to show that they were unfounded. Exactly where is the economic growth going to come from now that cash for clunkers is over and the economic stimulus is not doing much to either preserve or create new jobs.

In the short term, I expect another day or so of market turmoil, and then a gradual decrease in the VXN and a leveling out to gradual decline in the market. I do think we are headed lower, but at a slower pace than the last few days. Then I expect a run up into year end as investors on the sidelines put their money back to work in names that are 10% lower than they were just last week.

Index level: 1677.35
Sell to open: 1 Nov 09 1400 put
Credit received: 2.85
Initial Margin req.: $14,010.00
Commission: $1.25
Net credit: $283.75
Days to expiry: 20
Simple return: 2.03%
Yield: 36.96%
% to ITM: 16.03%
%Probability of expiring ITM: 4.84%
VXN level: 29.58%
Mmkt equivalent earnings @ 1.30%: $9.95

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

Trade Placed: Dec 2009

Today I again took advantage of the increased volatility and sold a December 1325 put for $4.50. I sold the December contract so I would have 50 days until expiry - a few days more than usual, but I went further out in time to receive a larger premium due to both the increase in the VXN as well as the number of days until expiry. The 1325 level was last crossed in late April and would represent a retracement of 61% of the run from March to last week. I do see this pullback continuing further, but I still think that buyers will step back in to ride the market higher into the end of the year. There are also multiple levels of support beneath the market.

Depending on how the market reacts tomorrow (jobless claims and Q3 GDP in the am), I am looking to sell another put - either a Nov 1400 (I didn't plan on selling another Nov, but I don't think the high premium is justified by an option with 21 days left until expiry and 17% otm)or a December 1400 put ($7.95 mark) that I would close out once the VXN declines or I take in 50% of the premium. Also of note is that in order for the NDX to get down to the 1400 level in 3 weeks, we would need another financial crisis sell off reminiscent of last fall - I just don't think a move like that is in the cards.

Index level: 1684.23
Sell to open: 1 Dec 09 1325 put
Credit received: 4.50
Initial Margin req.: $13,250.00
Commission: $1.25
Net credit: $448.75
Days to expiry: 50
Simple return: 3.39%
Yield: 24.72%
% to ITM: 21.23%
%Probability of expiring ITM: 5.80%
VXN level: 27.91%
Mmkt equivalent earnings @ 1.30%: $23.60

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

Trade Placed: Nov 2009

Today I took advantage of the increased volatility and decaying time premium and sold another Nov 1400 put for $1.20. I am also monitoring the Dec 1400 puts which mark for $5.15 - if my timing is correct and I can sell them as this downturn ends, I plan to close them out early and take 75% of the gain.

Index level: 1724.69
Sell to open: 1 Nov 09 1400 put
Credit received: 1.20
Initial Margin req.: $13,995.50
Commission: $1.25
Net credit: $118.75
Days to expiry: 23
Simple return: .85%
Yield: 13.47%
% to ITM: 18.83%
%Probability of expiring ITM: 2.23%
VXN level: 25.35%
Mmkt equivalent earnings @ 1.30%: $11.49



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

Trade Idea: Nov 2009

With today's 8% jump in the VXN, this may soon be the perfect time to sell Nov/Dec premium. I am looking at more Nov 09 1400 puts (20% otm) - depending on how much the market declines, I may be able to get 1.25 or more with less than 24 days until expiry. Should the market take a steep decline, I might look into selling 1400 or lower Dec puts for $4.50 or so and then close out the position when the market rebounds, just as it has the last 6 times since the March low. I think that with the need to show that your fund owned the market leaders at year end, portfolio managers will take advantage of the decline to pile into names like AAPL, AMZN, GOOG, driving the NDX higher. After that, I think the direction of the market will depend on how well the green shoots are doing. Time to get the Ortho.....................

Below I have been working with some data which shows the point and percent moves between NDX settlement values on expiry. It's interesting to note the % moves between expirations (approximately 30 days). The last time (prior to October 2008) since June 2002 that the NDX settled down more than 10% from the prior expiry was Jan 08 when it settled down 12.40%. So, for the period from July 2002 until Sep 2008 (or 75 months)the NDX expired less than 12.40% from the previous months NDX settlement value at expiration. This means that for those 75 months, you could have sold a 20% otm option on expiration day for the following months expiration and been no more than 7.60% close to the option being in the money (not including intraday moves between expirys)! I am also working on an intraday version of this data for the 30 and 42 day periods. More on this data and how it can be used in a coming post.

Trade Placed: Nov 2009

On Friday Oct 23rd, at the close I sold 1 Nov 1400 put for .90 with 27 days until expiry. With time running out and premiums dropping, I wanted to squeeze out some premium while I could. This is typically less premium than I would bother trading for, but with the VXN potentially running lower or remaining flat and more money coming in off the sidelines to chase the market into year end, I placed the trade.

Index level: 1753.63
Sell to open: 1 Nov 09 1400 put
Credit received: .90
Initial Margin req.: $13,995.00
Commission: $1.25
Net credit: $88.75
Days to expiry: 27
Simple return: .64%
Yield: 8.69%
% to ITM: 20.17%
%Probability of expiring ITM: 1.68%
VXN level: 22.62%
Mmkt equivalent earnings @ 1.30%: $13.49

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

October 2009 results:

October was the 2nd best month so far, due mainly to the fact that I was able to sell a November 1300 put early in October when the NDX was in a decline and the VXN rose by 10% to the 30 level. The net on that sale was $387.50 on 13,000 margin. $366.00 was made on 41,000 margin, which again shows that with the VXN deflating month to month, it is getting harder to sell premium at least 20% otm and receive a decent premium. Todays 7% increase in the VXN is encouraging, especially considering the market is still climbing higher. Hopefully the market will enter into another 5% pullback, allowing for more Nov puts to be sold.

Trades Closed: Oct / Nov 2009

In the past few days I have closed out the remaining October contracts for .05 as usual. I also closed out the Nov 1300 put I sold on 10-02 as the trade had made 83% of the max profit, or $387.50 in 13 days. I take profits if the trade makes 75% or more of its max profit within 2 weeks of placing the trade. This avoids having about 4 more weeks of life in the trade and watching as the market takes back the profit the trade had earned should the market turn down. It also frees up my margin to sit in the account or to use to place more trades.

Oct 9, 2009
Index level: 1725.52
Buy to close: 1 Oct 09 1300 put
Cost to close: .05
Initial Margin req.: $12,997.50
Commission: $0.00
Net debit: $5.00
Profit: $148.75
Days open: 29
Simple return: 1.14%
Yield: 14.40%
% to ITM: 24.66%
Mmkt equivalent earnings @ 1.30%: $13.42

Oct 12, 2009
Index level: 1740.81
Buy to close: 1 Oct 09 1400 put
Cost to close: .05
Initial Margin req.: $14,005.00
Commission: $0.00
Net debit: $5.00
Profit: $108.75
Days open: 21
Simple return: .78%
Yield: 13.50%
% to ITM: 19.58%
Mmkt equivalent earnings @ 1.30%: $10.47

Oct 14, 2009
Index level: 1743.50
Buy to close: 1 Oct 09 1400 put
Cost to close: .05
Initial Margin req.: $14,005.00
Commission: $0.00
Net debit: $5.00
Profit: $108.75
Days open: 23
Simple return: .78%
Yield: 12.32%
% to ITM: 19.70%
Mmkt equivalent earnings @ 1.30%: $11.47

Oct 15, 2009
Index level: 1746.79
Buy to close: 1 Nov 09 1300 put
Cost to close: .80
Initial Margin req.: $12,995.50
Commission: $1.25
Net debit: $81.25
Profit: $387.50
Days open: 13
Simple return: 2.98%
Yield: 83.72%
% to ITM: 25.58%
VXN level: 23.20%
Mmkt equivalent earnings @ 1.30%: $6.02

Trade Placed: Nov 2009

Today, before the end of day spike, I sold a Nov 09 1375 put for 1.50. Volatility is pulling back as the Dow breaks 10,000 and it seems like this earnings season will be a repeat of the last one - less bad is good!

Index level: 1748.84
Sell to open: 1 Nov 09 1375 put
Credit received: 1.50
Initial Margin req.: $13,747.50
Commission: $1.25
Net credit: $148.75
Days to expiry: 36
Simple return: 1.08%
Yield: 10.96%
% to ITM: 21.38
%Probability of expiring ITM: 2.49%
VXN level: 23.07%
Mmkt equivalent earnings @ 1.30%: $17.60

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

Trade Placed: Nov 2009

Friday I sold to open 1 Nov 2009 1300 put for 4.70, about 22% otm. I had placed the trade mid morning and watched as the price dipped to 4.30 or so. I was actually surprised to see I got filled, as I expected an unchanged VXN to have eaten away at premiums. Either way, I'll take it.

Earnings season begins this week and it will be interesting to see if companies will be able to show actual earnings growth now that they can't dip back into the human resource pool to fire workers, reduce costs, and beat earnings - or has the market already factored that in? Personally, I won't be surprised to see more in the way of a pullback from here on lousy earnings. 10% would put the NDX right at its current 200 dma (1508.00)- an area sure to provide support, and the 50 dma lies higher at 1640.90 - another area of support.

I have placed limit orders to close out all October trades at .05 (11 days until expiry). However, I may close them for more in order to free up margin to take advantage of elevated November put premiums. Depending on volatility, I may also try to sell another Oct put (the 1400 puts mark is 1.38) in order to add to this months profit. For Nov, I am looking at another 1300 put, or lower, depending on how much the market pulls back from here and how pitiful earnings are. At the earliest, I don't plan on placing another Nov 09 trade for a week or so, in order to let the number of days before expiration to decrease.

It's easy to sell puts in a rising market and make $, but once the market begins to pull back the trick is to receive enough premium and at the same time stay far enough away from the declining market.

Index level: 1661.42
Sell to open: 1 Nov 09 1300 put
Credit received: 4.70
Initial Margin req.: $12,995.50
Commission: $1.25
Net credit: $468.75
Days to expiry: 48
Simple return: 3.61%
Yield: 27.43%
% to ITM: 21.75
%Probability of expiring ITM: 5.88%
Mmkt equivalent earnings @ 1.40%: $23.95

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

Trade Idea: Nov 2009

I am looking to sell a Nov 1300 put for $3 or higher. The return / yield on the required 13k margin for 49 days will be 2.31%/17.20% while ThinkorSwim is showing a 3.87% chance of expiring itm. The strike is roughly 25% otm and there are multiple levels of support underneath the index around about 1600 / 1500 / 1400. I am looking to place this trade to avoid the issue I have been having for the past few months - volatility dropping and premiums on options with 30 - 40 days until expiry selling for a somewhat small premium, producing a return of only about 1%. Of course, selling the strike with 49 days in its life enhances the risk that some event may drive down the index and increase the cost to close the position, but I feel comfortable that we are not approaching another black swan event - at most a normal pullback of 7 - 10% or so.

It seems like the market is entering a period of rising volatility and consolidation or possible decline. I believe we may be at the point where the economic news begins to falter, pointing out the fact that the economy isn't as robust as many believe. We also have jobless claims tomorrow and the unemployment rate coming out Friday am - will the market take it as a positive that "only" 170k (the consensus number) people have become unemployed in the last month? Too bad most of them wont be able to find a job.

Trade Placed: Oct 2009

Today I sold to open 2 Oct 2009 1400 puts for 1.15 each, about 19% otm. There are just 24 days until expiry and I wanted to place the trades while there was still a fair amount of premium left to take in. However this trade came at a cost of roughly $28k in margin. Volatility levels still are not providing for larger premiums, but the trade off is a shorter time than usual until expiry.

Index level: 1731.19
Sell to open: 2 Oct 09 1400 put
Credit received: 1.15
Initial Margin req.: $28,010.50
Commission: $2.50
Net credit: $227.50
Days to expiry: 24
Simple return: .81%
Yield: 12.35%
% to ITM: 19.13%
Probability of expiring ITM: 2.29%
Mmkt equivalent earnings @ 1.40%: $25.75

Please view my disclosure on the bottom of this blog.

September 2009 Results:

September ended with another gain even as volatility levels continued to decline. All options were closed out for .05. I wanted to place more trades, but the fear of a suddenly reversing market kept me from doing so. I still believe the market is approaching a critical level where a pullback of 10% or so will occur, especially as the NDX is approaching a multi year congestion area around the 1750 level. The VXN is still bouncing around its mean levels since July, either to go higher or drop back down into pre Lehman channel of 22 to 35. However, any pullback will come with elevated VXN levels as traders look to lock in their profits from the last 6 months. As we approach last Septembers market levels, we should consider if things are really any better than they were before the financial collapse last year.

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