Trade Placed: May 2009

Today I sold to open 15 May 97.50 puts. With only 30 days until expiry and the VXN now at the low end of its range of the last few months, I decided I should sell this strike in order to take in premium before it evaporated. The margin requirement on this trade is higher than I normally like, but with lower put premiums for the front month becoming the norm, I expect the margin requirement to sell options 25-30% otm will increase, as the margin requirement is calculated by how far otm the sold option is. Essentially, I will need to sell puts that are closer to the strike than I would like, in order to receive at least .15 per option. No doubt this is a function of the decreasing level of the VXN. For the June contracts I may look sell puts when there are 40 or so days until expiration in order to capture a larger premium. However, allowing more time on the trade also increases the chance of the market making a deep retracement which would put the short strike uncomfortably close to becoming itm.

Index level: 133.42
Sell to open: 15 May 09 97.50 Puts
Credit received: .16
Initial Margin req.: $14,632.50
Commission: $18.75
Net credit: $221.25
Days to expiry: 30
Simple return: 1.51%
Yield: 18.40%
% to ITM: 26.26%
Probability of expiring ITM: 3.04%

Please view my disclosure on the bottom of this blog.

Weekly Recap: 4/06/09 - 4/09/09

Weekly Range:

• Open 130.65
• High 134.17
• Low 126.88
• Close 134.03
• Point Change +4.60
• % Change from last week close +3.55%

For another week in a row, the MXN has increased and the VXN has decreased. The higher highs and higher lows are making it difficult to put on May puts that are at least 25% otm. I still believe the market is due for a pullback, and when that occurs, I will trade short the May puts - just not sure yet what strike I will trade - the strike will depend on whether the pullback is news driven and deep, or just a shallow technical decline. With only 31 days until May expiry, the window for selling the puts at a reasonable price is closing. Meanwhile, the short April 91 puts have just 3 days until expiry and are 32% otm - remaining otm will provide the third month in a row of profits.

Weekly Recap: 3/30/09 - 4/03/09

Weekly Range:

• Open 123.09
• High 131.64
• Low 120.51
• Close 131.62
• Point Change 6.47
• % Change from last week close +5.17%

Last week MNX made a decisive move above its 100dma, gapping up above the 125 level and remains 26% higher than its March 9th lows. I believe that after a run of that magnitude in 3 weeks, the MNX is due for a pullback, potentially to the 115 level. Earnings season begins next week and it is expected to be bad, further clarifying the need for a general market pullback. The VXN still remains range bound in the lower 40's and hasn't helped to pump up option premiums. With 38 days until May expiry, I am looking to sell the May 90 puts for .25. Although the puts now go for slightly less than .25, the pullback that I expect to happen should get my order filled nicely. The April 91 puts I am short remain 30% otm and with only 10 trading days left in their life, they should expire otm as expected.

Trade Placed: April 2009

On today's afternoon dip, I got filled on the April 91 puts at .16 (the 90 puts I wanted to sell just didn't bring in enough premium). I feel comfortable on the way the market sold off then rallied to a positive close. I think that at least for the short term, the market wants to go higher. The margin requirement on this trade is higher than I normally like, but the trade off is that there is only 22 days left in the life of the option until expiry.

Index level: 120.80
Sell to open: 15 Apr 09 91 Puts
Credit received: .16
Initial Margin req.: $13,650.00
Commission: $18.75
Net credit: $221.25
Days to expiry: 22
Simple return: 1.62%
Yield: 26.89%
% to ITM: 24.67%
Probability of expiring ITM: 2.90%

Please view my disclosure on the bottom of this blog.

Trade Closed: April 2009

I closed out the April 75 puts today for .03 - I wanted to free up the margin since the trade has made 88% of its max gain in just 14 days. Since I use ThinkorSwim, I don't pay a commission to close out trades for .05 or less, so I only gave up $45. I am trying to place another 15 contract trade at the 90 strike for April for .15 (27 % otm with 23 days until expiry and a 24% yield). The Geitner TALF plan has sent the market skyrocketing, and I am not sure that the market will provide much time (if at all) to sell more April puts and receive a fair amount of premium for them.

Index level: 124.50
Buy to close: 15 Apr 09 75 Puts
Cost to close: .03
Initial Margin req.: $11,265.00
Commission: $0.00
Net debit: $45.00
Days open: 14
Simple return: 2.63%
Yield: 68.56%
% to ITM: 39.76%

Weekly Recap: 3/16/09 - 3/20/09

Weekly Range:

• Open 117.73
• High 122.45
• Low 114.47
• Close 118.72
• Point change +1.87
• % Change from last week close +1.60%

Has the rally ended? The MNX has rallied about 18% from its intraday low on 03-09 and has run smack into its 50 dma, breaching it by a few points, then retreating down to it on Friday. The VXN ran into its 50 dma on Friday and held its ground. With Congress changing the rules again with the bonus tax, its doubtful many will be willing to risk putting their money to work in the market at this point. Also, after its run, the market is ready for a rest. This is good for me as with less than 30 days until April expiry and a falling market, the prices of the otm April puts will increase. I still look to sell the April 85 puts sometime this week.

March 2009 Results: