Comments on: Bought Insurance Puts on SPY and XLB

By: Alex Fotopoulos

Alex Fotopoulos — Tue, 07 Oct 2008 16:53:15 +0000

Thanks for the numbers Mule. I don’t even think you have to switch directions that often. A bear market catches most of the down days and the bull catches most of the up days obviously. That could even allow you to stay in one position for months at a time, if not longer.

Also, I added the UltraShort S&P 500 ProShares (SDS) to my Option Ideas page (http://mytradersjournal.com/stock-options/stock-and-option-trade-ideas/). Your theory is this? – Instead of buying a put because I think SPY could go down, instead I should sell a put on the inverse because SDS should go up? If SDS goes down, I’m making money on my other positions. I’ll have to consider it. It’s a limited hedge due to limited profit though.

By: mule65

mule65 — Mon, 06 Oct 2008 20:44:18 +0000

I’d sell 1 Put on SDS before buying 2 expensive Puts on SPY. If assigned you have a hedge that costs half as much an equivalent SPY short that you can sell covered calls on. I posted this 8/18/08 on another board:

I pulled historical prices of Dow Jones Industrial Average (^DJI) back to 10/1/1928 from Yahoo into a spreadsheet and found some interesting numbers. Basically says that timing does matter and being “Long Only” misses a lot of opportunity, IMHO.

Days:
——————————-
Up 10,426 (52%)
Down 9,631 (48%)
Total 20,057 (100%)

Points:
——————————-
Up 174,111 (51.7%)
Down 162,451 (48.3%)
Total: 336,563 (100%)
Diff: 11,660 (3.5%)

By: Alex Fotopoulos

Alex Fotopoulos — Mon, 06 Oct 2008 20:37:42 +0000

I had a chance to sell these for around $800 profit earlier today, but got called in a meeting at 3:00 and didn’t get to see the turn back up for the indexes. I’m up on SPX and down on XLB. I’ll probably hold these a few more days to see if I lose on them or can do OK. The high IV has kept me from buying puts lately. Once I got behind I didn’t want to spend the money to catch up. Hopefully I waited too long and the markets will recover now. I won’t mind losing $3600 on these if my other stocks/options bring me more.

By: Mark Wolfinger

Mark Wolfinger — Mon, 06 Oct 2008 19:53:37 +0000

Buying puts when IV is sky high is tricky.
I’d recommend going for the least expensive puts – and that means the near-term (not the further OTM). Yes, time decay is RAPID, but they have much less vega . If (big if) IV drops, you will be happy you did not buy further out puts (such as those DECs you bought).

Good luck here.

I was lucky. The strategy I recommend in my book paid off in spades. I owned extra strangles against the iron condors I bought.

By: Warren

Warren — Mon, 06 Oct 2008 19:35:55 +0000

Hang in their!!! I read your blog almost every trading day of the week and have it “RSS” into myyahoo account at the top of the list. I personally use the “Married Put” strategy and I’m about 75% invested right now. My account is down about 5% for the year and all my stock positions are down over 40% from where I entered. As you know this strategy protects too the downside if things just go bad like it is now. I especially like the idea of determining how much risk I want too take in a “Married Put” trade before I enter it and by keeping the Long put option in place, helps too keep my emotions in check. I have in place covered calls on my “Married Put” trades too help reduce the “small” losses I have. The “Married Put” strategy is my “PLan A” for investing my money and what really keeps me coming back too read your daily postings is how we both have the same strategy which I call my “Plan B” for investing and that is adding on a monthly basis a fixed amount of $$$ into our trading account. Keep up the daily posting…….and stay hedged…..Warren