As mentioned in the comments of the last post, I've been eyeballing selling some calls against my XLF holdings. I really wanted some compensation for the risk I took before appearing "too eager" to lock in some profits. Well, I set $15 as my point to take profit short term and as a result have sold enough calls to liquidate half of my position if my strikes are hit. I didn't really like the remaining premium on October's calls, so I went out to December. I've sold some DEC 17 calls and got filled for a credit of 0.41.

In my mind, this play serves two purposes. The first purpose is to hedge what I feel will inevitably be a small "collapse" in prices. A run up can't continue forever, but it can certainly continue longer than most (including me) expect.  Which brings me to point number two. I have a bad habit of being 'greedy', or more technically, sticking to my trading plan and actually taking the profits while they're available. So if we keep on running, I don't have a choice. So I've effectively saved me from myself. My original plan way back in 2006 stated that I want exposure to financials in my long term holdings, so putting half of the position at risk fits well. If called away, I can start selling puts on XLF again.

Update note: This was filled when XLF was between 15.35 and 15.40.

I made mention of a GE short put play back in November of 2008.  I made some premium on the OCT 2008 puts and rolled up to DEC 2008 where I was subsequently assigned at $17.50. I've been holding to GE ever since. Needless to say, it's been a hell of a ride, but we're to where writing premium might actually make some sense at this point. GE has risen pretty substantially over the last couple of weeks. The OCT calls are looking good to offset some downside risk on the recent run up. If GE falls back down to earth, I can buy the calls back at a profit. If GE continues to rise, I can get called away and look into short puts again. Let me put the move into perspective a little.

ge-chart-sep-2009.png (48.25 kb)

I like to plot bollinger bands 1 and 3 standard deviations away from the closing price. When the old stalwarts start flirting with 3 standard devs, it's time to take some profit. 1 std dev is represented by the purple line and 3 standard deviations is represented by the crimson line. GE is very unlikely to "break out" like a small cap or new issue would. It's not to say it's impossible, because nothing really is.

My idea here is probably look at the OCT 18's here. My cost basis on GE is somewhere around 16.50-16.90 because of previous premium sold, the 18's allow me to get some profit on the move plus get some more premium.

As usual, I don't recommend followers, ever. I don't know anything more than you do, I'm just playing what I think are the odds in a speculative account given my specific situation and tolerance for risk. As usual, I welcome comments on my ideas.

Update: Filled OCT08 calls @ 0.15.

Seems that the theme of financial news right now is the 1 year reflection on the financial 'crisis'.  I thought it would be interesting to look at the TED spread between now and then.

My chart of the day, if you will.

I'm not sure if Twitter is the pulse of the heart beat of the world, but I consider it pretty close.  Trending topics on Twitter is what the world is talking about, allegedly. Is this a segment of the population that is relevant to me, I don't know, but I'm mildly concerned that on 9-11 here are the trending topics.

Shallow and uninteresting on a day that made history.

Update on the last post, I took the IWM spread trade and went with it live.  I got filled with a 0.18 credit per spread.  I figured at the very least, something fun to watch until October.

Looks like the latest round of dips got my newest trading system all hot and bothered.  Today a trade in IWM was flagged.  To recap, I have an ETF trading system that I'm using to flag option trades.  The ETF trading system is a low frequency/high probability setup and I add to my winning % by selling put credit spreads one standard deviation out of the money.  A standard dev for the IWM is about $51 (current IWM price is 55.80), so almost 10% out of the money.  If I put on a put credit spread 1 standard dev, here's what the P/L graph looks like over time.

(click to enlarge)

At the time of analyzing the position, I'm looking at a credit of 0.18, before commission.  This sets my maximum profit of the credit and my maximum risk being the distance between the two strikes - the premium (0.82).  I could do a few things, first, I could widen my strikes, if I did a 49/51 put credit spread, I could obtain a credit of 0.33 per spread but would also double my risk.  I could also move the short strike closer to the money.  If I did a 54/55 PCS for example, I would get a 0.39 credit, but if $55 was breached at expiration, the position would lose.  So higher probability of loss, but bigger credit.  Options are always a trade off and allow you to fine tune your position to what you're feeling.

I haven't decided if I'm going to go with real money or do another paper trade.  I don't recommend anyone put this trade on.  Doing so will likely be hazardous to your account value's health.  This is in testing at this point.

As usual, just sharing an idea and always welcome feedback.