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Old 12-17-2011, 07:57 AM   #41
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I couldn't get everything settled in time to do option trading this week. My one virtual trade on Options house selling a Dec 124P and 128C at a net credit of 1.84 when the SPY was ~126 on 12/12 I end up closing at 2.40 for a net loss of .56.

Fortunately my real money monthly trades all did much better.
SPY Dec 117P/123C strangle with net credit of 5.06 traded on 11/21 when the SPY was ~120. Both sides expired worthless.
Likewise my USO 35P/40C short strangle net credit 1.31 also expired worthless written on 11/21
Individual puts also all expired worthless. BRK/B 65, CVX 95, ITW 42.50, O 30, GOOG 460, $14 for that 3 month option and since I'd do cart wheels to own GOOG <450 I'm disappointed that didn't get exercised but the 14% annualized return is ok also.

Expired calls BBT @28 CMP @105 (of course it would have been nice to sell the stock in the mid 90s rather see drop to 72..) Exercised calls BBT@22. This is tax loss selling but I wrote a put so I'll probably be buying this stock in Jan.

I did lose money on a GE put that I sold for .95 and bought back yesterday at 1.24.

Now that the VIX has dropped below 25, I am going to cut way back on selling individual puts, once all of my Jan options expire I'll probably only write a couple until VIX is near 30. Instead I'll concentrate on selling the index options.
Clifp,

Can you give some more details, like your position size as compared to your total trading account and the size of your trading account as compared to your total portfolio? Percentages is fine, you dont need to give dollar figures. How many positions do you normally have open at the same time?

I like your short strangle idea but only on a monthly basis. Ive paper traded it using weeklies and didn't like it.
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Old 12-17-2011, 05:46 PM   #42
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Clifp,

Can you give some more details, like your position size as compared to your total trading account and the size of your trading account as compared to your total portfolio? Percentages is fine, you dont need to give dollar figures. How many positions do you normally have open at the same time?

I like your short strangle idea but only on a monthly basis. Ive paper traded it using weeklies and didn't like it.
I normally write 5 SPY strangles and 5-10 contracts on puts. Most of my individual stock positions are in the 20-30K range (although some have appreciated to twice that). Prior to the Dec expiration I had 16 puts and 8 calls (all but SPY covered and I use VTI for my B&H). I had 320K in short puts, (plus two short 2013 puts) backed up by 120-140K in cash, mostly sitting in Schwab savings with .35% interest rate. This is roughly twice as many options as I've normally had, but as I've said the increase in VIX struck me as golden opportunity to make some gold.

I am trading this in my main account which is north of million and 40% of my liquid assets.

In order to reduce taxes my plan was to do my SPY trades in one of my IRAs. 1000 SPY and 125K in cash to write the strangles. However, I after looking at the weekly pricing for calls like you am not convinced it is a good strategy, but I do like on it monthly basis.

When I compare a narrow strangle weekly D23 120P 123C the net credit is only 1.74 I'm not all that confident that market will finish next week between 118.26 and 124.74. But if I move to a monthly basis I can have slightly wider strangle Jan 119P 124C get 4.71 in premium and I have a wide range of profitable SPY closes 114.29 to 128.71 although significantly less than last month, where I got 5.06 for a 6 point spread and only had 4 weeks vs 5 weeks of trading time.

I am starting to think that just selling weekly SPY puts may be the best strategy of all.
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Old 12-17-2011, 06:59 PM   #43
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In order to reduce taxes my plan was to do my SPY trades in one of my IRAs. 1000 SPY and 125K in cash to write the strangles.
Have you considered using the SPX's instead of SPY's in a taxable account since they qualify for the 60/40 tax treatment?
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Old 12-18-2011, 07:22 AM   #44
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No I had not. I vaguely remember the 60/40 tax treatment (aka the tax for wall street ok no politics). Everytime I look at futures trading it seems scary and confusing. I am also loath to open yet another brokerage account (I closed down my Ameritrade and Fidelity this year which I opened because of some premium they offered).

But this is an excellent suggestion. Is there any way to trade SPX other than opening a future account?
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Old 12-18-2011, 08:05 AM   #45
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I normally write 5 SPY strangles and 5-10 contracts on puts. Most of my individual stock positions are in the 20-30K range (although some have appreciated to twice that). Prior to the Dec expiration I had 16 puts and 8 calls (all but SPY covered and I use VTI for my B&H). I had 320K in short puts, (plus two short 2013 puts) backed up by 120-140K in cash, mostly sitting in Schwab savings with .35% interest rate. This is roughly twice as many options as I've normally had, but as
How does that add up to being short 320K in puts? Can you help me with the math?
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Old 12-18-2011, 01:47 PM   #46
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But this is an excellent suggestion. Is there any way to trade SPX other than opening a future account?
You don't need a futures account to trade these as they are not options on futures. They are cash-settled European (no early exercise) options on the S&P500. The mini-SPX is one-tenth the size of the SPX, which makes the notional amount of $ per contract the same as SPY.

You can check out the contract specs at the CBOE web site.
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Old 12-18-2011, 03:02 PM   #47
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How does that add up to being short 320K in puts? Can you help me with the math?
I am saying if everyone of my 14 short put on individual stocks that was open between Dec. 17 and Jan 2012 finished in the money I would need to come up with $320K to purchase the shares.
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Old 12-18-2011, 04:59 PM   #48
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You don't need a futures account to trade these as they are not options on futures. They are cash-settled European (no early exercise) options on the S&P500. The mini-SPX is one-tenth the size of the SPX, which makes the notional amount of $ per contract the same as SPY.

You can check out the contract specs at the CBOE web site.
I called Schwab and found out I can easily trade these. Schwab using some strange symbols for index so I could never find the options associated with SPX.

I also read the rules regarding the tax treatment on SPX options and you are exactly right they do qualify for the 60% long-term capital gains and 40% short term.

Frankly it is mystifying why if I sell a SPX 1200 Dec 23 put for say $9.00 which expires worthless $540 of the profit is taxed at the 15% cap gain rate for the 6 days I was short the option (or my counterparty held it.)

Even more baffling is if I sold 10 SPY 120 Dec 23 puts for $.90 this same $900 in profit is treated at short term capital gains. If I don't know better I'd say it is because the folks who traded options in $120,000 blocks have better lobbiest than those who trade $12,000 securities.

Two other benefits for doing as you suggest are the options are European style which eliminates the early assignment hassles that ERD had. Most importantly for me is lowers my trading cost significantly. Schwab charges 8.95+ .75/contract for up to 2 options legs (say a calendar roll out or writing a strangle) A typical trade for me using SPY would 10 or 20 contracts costing me $16.45 or $23.95. Optionshouse is cheaper costing me between $10 to 15.50. Trading at single contract SPX will only cost $9.70 or $10.45 at Schwab. If I am doing weekly trades this adds up to several hundred dollars. The trading volume is lighter so the spreads maybe more.


So thanks very much for the tip.
Over the years reading/participating in this forum has saved/earned me well over a $1/post!!
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Old 12-18-2011, 07:35 PM   #49
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OK, now you have me interested. My normal position size when I do a SPY trade is 10 contracts. Where do I find the SPX options at Optionshouse?
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Old 12-18-2011, 09:44 PM   #50
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RE SPX vs SPY
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The trading volume is lighter so the spreads maybe more.
When I was looking at SPX (for the same reasons), the spreads seems significantly wider. And I worried a bit about getting filled if I set a limit near the middle with that lighter volume.

Maybe that's changed, I'll probably take another look in the AM.


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Old 12-19-2011, 12:31 AM   #51
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On optionshouse I just type SPX in the quote and go to the option tax, you should see the options change.

The spreads appear wider when the market is closed. I'll have to look when the markets are opened. So right now a Jan 1200P has 27.20 bid 29.00 ask and 28.10 last trade. The SPY 120 has 2.87 bid 2.90 ask and 2.88 last. Of course since it is 10 contracts you need to multiply the SPY spread by 10x.

It is worth watching I think.
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Old 12-19-2011, 06:36 AM   #52
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There's also some kind of extra exchange fee when trading SPX options at Optionshouse. I think it may only be $0.35 though.
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Old 12-19-2011, 02:25 PM   #53
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Looking at the spreads the weekly were .30 to .40 at the money or slightly below so a bit higher than .01 to .02 for SPY options.

The spread for the Jan was significantly larger 30.70B 32.40 ask for Jan 1200 with SPX=1205. I suspect that larger spread for the Jan is probably a function of the more complex (Mark to Market) accounting rules when trading options on SPX.

Anyway this something I'll start looking at next year after all of the distributions, tax selling etc are done.
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Old 12-19-2011, 03:05 PM   #54
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Any ideas why my HANS Jan85 Puts are DOWN today with the stock down 0.65%? They have a delta of -.17 so with the stock down 0.62 shouldnt the puts be up .62 x .17 or about .10 or .11? They went from 1.13 down to 1.02 where they are right now. Makes no sense to me.
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Old 12-19-2011, 03:51 PM   #55
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Any ideas why my HANS Jan85 Puts are DOWN today with the stock down 0.65%? They have a delta of -.17 so with the stock down 0.62 shouldnt the puts be up .62 x .17 or about .10 or .11? They went from 1.13 down to 1.02 where they are right now. Makes no sense to me.

I know nothing about HANS, but it isn't uncommon at all for a stock to move towards the option and yet also see the option decline in value. In fact, it is pretty common after an ER. Before the ER, there is a higher expected volatility, so options are priced high. A bad ER comes out, the stock drops, but now it is known just how bad the news is, so there may be less fear of a steep drop off.


Not sure anything like that applies to HAN today, but that would explain it. Does the delta you are using really factor in the current implied volatility?

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Old 12-19-2011, 05:03 PM   #56
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I dont know that much about the greeks but the delta I quoted is the current delta. Also, I am also short some HANS puts. They lost value as well (meaning I made money on them which is exactly opposite what shouldve happened) so maybe the volatility did go way down over the weekend because the same strike calls also went down. However, there was no recent earnings release in this stock.

The puts exactly like the stock was up .62% not down .62%
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Old 12-19-2011, 07:12 PM   #57
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So I sold an SPXW 1200 Dec 23 Put at $10.30 I am not sure but I believe the next highest ask was $10.50 so a .20 spread. I figure this will let me see how the LTG and short term tax treatment actually works, assuming Schwab reports it correctly.

The normal $9.30 commission applied.
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Old 12-22-2011, 05:17 AM   #58
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12/21 wrote 10 SPY 124 Dec 23 puts for .80 in my IRA. The spread on the SPXW was too large and tax advantages are not applicable in my IRA, so I went with more liquid SPY options.
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Old 12-22-2011, 05:38 PM   #59
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I have been reading this thread with great interest. It's good to see what other investors are doing with options. I have been using a conservative strategy for over a year now. I buy a stock prior to the x-div date and sell an ITM call on it for a month or two to give me downside protection. For example: yesterday I purchased 800 shares of GE for 17.42 ( went X today) and at the same time sold 8 Feb 16 calls for 1.57. the normal div for GE is 3.94% but with my call I put out less cash making the div. 4.29%. Plus I pick up 15 cents in time value. This gives me an annualized return of over 9% if GE stays above 15.85. I also have a 9.01% hedge on the downside. I use the dividends to purchase more shares and overtime it adds up. I loose out on any big stock run ups and have risk if the stock tanks but I just swing for singles .

Does anyone else use this method?
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Old 12-22-2011, 09:59 PM   #60
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Leon I looks like you are employing a buy write strategy and dividend capture. I think it is viable strategy especially if you use it inside an IRA. I know there are some complicated rules regarding when qualified dividends are taxed at the more favorable rate. I try to stay away from them.

I tend to wait until I have owned a stock for near a year before writing a covered call. That way if the stock is called away the option premium is treated as a long term capital gain. Of course in an IRA none of these concerns apply.
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