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