Friday
Nov032006
Liquidation of S&P500 Strangles from September 29th.
November 3, 2006 at 12:15 PM
I sold out the SP500 Strangles Mentioned on September 29th.
Here is the blog entry:
"On the S&P500 I used options on futures (futures quote 1347.50):
Paid $27.50 for December 1350 Calls
Paid $27.50 for December 1345 Puts
Total: $55.00.
My plan is to liquidate these potions at some point in October. I will do it in the middle of some kind of panic. If there isn't a panic then I plan to liquidate them by the end of the month."
Today's Trade:
Sold the S and P 500 index strangles (what's a strangle?)
"On the S&P500 I used options on futures (futures quote 1368.50):
Sold December 1350 Calls at $30.00
Paid December 1345 Puts at $11.75
For a total of $41.75
Net loss was $14.25 per contract. You might ask "But Neubie, the index was up 21 points during the month how could you have lost money?" There is something in options called "Time Decay". Basically, the insurance value in the options fell fast than the delta (market exposure) help me on the upside. While we did get a stong up move in the month of October we didn't get the kind of intense move I was looking for. And while right now I feel the next move will be lower after the elections, I also think that my trader's discipline forces me to liquidate this position since my plan called for volatility in October. If I have the same opinion I can re-establish this position with a higher strike price. Another reason to reestablish this position is that as the market moves higher, a strangle or strangle will get a long bias as the put value drops a way and the call price moves in a more 1 to 1 relationship with the underlying asset. (in this case the underlying asset is S&P500 index futures).
Disclosure: I own the positions mentioned above. I plan to update all changes.
Disclaimer: Nothing in this web log is meant to be a recommendation to buy or sell. I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult your own investment professional before buying or selling any security.
Here is the blog entry:
"On the S&P500 I used options on futures (futures quote 1347.50):
Paid $27.50 for December 1350 Calls
Paid $27.50 for December 1345 Puts
Total: $55.00.
My plan is to liquidate these potions at some point in October. I will do it in the middle of some kind of panic. If there isn't a panic then I plan to liquidate them by the end of the month."
Today's Trade:
Sold the S and P 500 index strangles (what's a strangle?)
"On the S&P500 I used options on futures (futures quote 1368.50):
Sold December 1350 Calls at $30.00
Paid December 1345 Puts at $11.75
For a total of $41.75
Net loss was $14.25 per contract. You might ask "But Neubie, the index was up 21 points during the month how could you have lost money?" There is something in options called "Time Decay". Basically, the insurance value in the options fell fast than the delta (market exposure) help me on the upside. While we did get a stong up move in the month of October we didn't get the kind of intense move I was looking for. And while right now I feel the next move will be lower after the elections, I also think that my trader's discipline forces me to liquidate this position since my plan called for volatility in October. If I have the same opinion I can re-establish this position with a higher strike price. Another reason to reestablish this position is that as the market moves higher, a strangle or strangle will get a long bias as the put value drops a way and the call price moves in a more 1 to 1 relationship with the underlying asset. (in this case the underlying asset is S&P500 index futures).
Disclosure: I own the positions mentioned above. I plan to update all changes.
Disclaimer: Nothing in this web log is meant to be a recommendation to buy or sell. I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult your own investment professional before buying or selling any security.
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