Category: Finance

The CBOE Volatility Index (^VIX) has been on a downtrend since its high on March 17th and this morning made it down the lowest point it has seen since October 11th, more than seven months ago.  Last June I asked if the VIX still matters. By August the VIX was at a five year high and those who sold options while the volatility piece of the option price was low were short options at higher prices than where they sold, even after time value had eroded.

I’m bringing up the VIX chart again today because it seems odd to me that it’s sinking with so much uncertainty in the markets due to rising oil prices and left over sub-prime mess that.  I don’t expect the VIX to stay at the top of its range forever, but falling this low makes me weary of selling new options in too large of a quantity.  Since I’m having a hard time finding the returns I’d like to make with volatility down, I’ll continue to sit on the sidelines a little longer and wait for a better entry point. 

If I thought we were in a safe bull run I’d be apt to sell options even at these lower prices, but I have to be cautious.  Options expiration is this …

I closed out my AMAT exposure at the end of Monday’s trading day, prior to earnings release Tuesday after close. 

Originally, I sold May 20 naked puts (ANQQD) on AMAT when it was at 21.  Less than two weeks later AMAT was down to 18.90 and I sold May 20 naked calls (ANQED) on it.  Today AMAT inched up all day and was around 19.80 when I decided to cut my risk and get out while I could.  I ended up making an $8.02 profit.  I’m not sure which direction AMAT will move after earnings are released.  If it flattened out around 20 I’d have been sitting pretty, but I decided the risk was too great that it would shoot farther than my premiums would cover.  Depending how earnings go tomorrow, I might get right back in on Wednesday morning when the risk has been reduced.

Here’s how my trades broke down:

Date/Time                           Description                              Amount
04/03/2008  13:13:12          Sold 4 ANQQD @ 0.8                $307.00
04/14/2008  09:37:32          Sold 4 ANQED @ 0.55               $207.00
05/12/2008  15:49:54          Bought 4 ANQED @ 0.45           $(192.99)
05/12/2008  15:50:49          Bought 4 ANQQD @ 0.75          $(312.99)
                                                                                                
                                                                                Profit  $8.02
 

I am recharting the DJIA ($DJI) this week using a slighty different angle for the upward trending line of higher highs.  I’m doing this for two reasons.  One is to show that picking the exact points on a chart can change the story if you are a little bit off and the other is to show that the DJIA is still above the trend line of higher lows I drew last week.  Last week I mentioned some potential factors that could weigh down the markets.  Oil proved to be one this week along with AIG as the other. 

The DJIA is hitting a key point next week.  Both the longer trending downward line from last October and the upward trending line that just starting in March are hitting a triangle and could both provide support.  From last week’s chart I also mentioned that the Dow finally broke above the 13,000 mark.  I should have waited for another day closing above that mark before considering it a true break above.  Having 2-3 days close above the potential ceiling are really needed for confirmation.

Take all this with a grain of salt this week (as if you should ever treat it with any more validity).  I hurt my neck again on Friday …

In my hunt for stocks to sell options on, I started treking back through previous trades I’ve made and came upon AA Tuesday morning.  I think AA won’t fall much, if at all and put a limit in to sell naked puts a few dollars out of the money.  AA dropped some today and while at 37.52, I sold three AA June 35 naked puts (AARG) and received $377.75 after commissions.

AA ended the day up a few cents to 38.09 on an overall down day for the market. ~35 has offered good support for the past two months, so I’m banking on it working for me again.  I might have gotten back in too soon since AA is still in its trading channel and could come back to the 35 range before perking up again.  Then again, with it up on an overall down day I might have timed the dip exactly right.

In my rarely discussed IRA, I sold in the money covered calls on PAYX for a June 35 strike.  I’m nearly fully invested in both my wife’s and my IRAs now and can return full attention back to my taxable account.

Once again I’m back in on Monsanto (MON).  I’ve sold multiple naked puts on MON over the past year and now that it has pulled back from its recent highs, I’m back in again with the hopes that it will help grow my account some more.

While MON was trading at 119.48, I sold one MON June 110 naked put (MONRB) and received $429.25 after commissions.  My June options expiring are starting to get better balanced versus my May options expiring.  I try to have half my account expire each month so I’m never fully uninvested and never over committed to any one month period.

As I mentioned MON has pulled back from its highs.  I opted to get back in now because they reiterated their five year plan and seem to be stable enough to weather any short term dip with their large cash piles.  MON closed above its 50 day moving average yesterday and today moved up above its 10 day moving average.  I think the 50 day moving average could offer support on a slight pullback.  In case I’m off by a few bucks, I sold farther out of the money.  With such high premiums I didn’t need to sell the puts too close to the current price. I also see a short term trend line showing up over the past four days that shows …

I got out too early last time around and now that Apple (AAPL) has gone up another $50, I’m back in.  While AAPL was trading at $183.24, I sold one AAPL June 170 naked put (APVRN) and received $449.25 after commissions.

My reasoning was simple.  Earnings were already out and good and the chart didn’t look like AAPL would pull back lower than $170 by June expiration.  Throw in the good premiums and I’m back to repeat previous trades.  I know part of my mindset is to get in deeper invested and AAPL trading that high made it easier.  Had I been on my toes I would’ve gotten in as soon as AAPL posted the good earnings report.  I didn’t move quickly, so my strike is higher and my premium is lower.  I’m still in though.

I planned to make the trade in my IRA, but didn’t have $18k available.  AAPL could easily be a long term trade.  You know my mindset for long term is 6-8 months, not quite a lifetime.

I’m back to charting the Dow Jones (aka “DJIA” or symbol “$DJI”) today.  It finally broke above 13,000 and even stayed above it on Friday.  That put the DJIA above the line of resistance at 13k and since I last charted the DJIA, it broke the lower resistance around 12,700.  You can see a new upward channel that has formed starting with the low of January as the beginning of the trend line of higher highs.  It has also stayed above the 10, 20 and 50 day moving averages for a couple of weeks.

Due to this break above 12,700, I’m changing my sentiment to slightly bullish on my home page.  I went Bearish in January when the DJIA was at 12,500 and should have changed it two weeks ago.  At least I’m awake at the wheel again now.

I opted for slightly bullish versus just flat out a raging bull because I see potential for some factors that could weigh us down still.  If the DJIA can get down to that lower trend line of higher lows, I’ll be ready to jump in more than I have already.  As of this weekend I’ve sold enough naked puts combined with my long positions covered with calls to equal 102% of my account value.  I have a lot of options expiring in May, so I’m in a position to …

Is it bad form to quote myself?  When I wrote about SFLY a couple of days ago I said “I wouldn’t be too surprised to see SFLY below 15 by the end of the week.”  It opened at 13.37 today, two days after my prediction.  Instead of selling calls, I should have bought puts, but then again that’s not my trading model.

I listened to about 30 minutes of the earnings call yesterday afternoon while I was on my way home from work.  I thought the numbers would be bad which is why I sold SFLY naked calls twice before the announcement and it looks like I’ll be rewarded for my risk taking.  As much as I like to base my trade decisions on the charts (and the chart was right again for SFLY), I also like to listen to conference calls for earnings announcements.  I advise listening whenever you have the chance.  I only catch a couple per season, but am almost always happy I did.  They are free to call into and you can gain more information than just what’s in the numbers.

What doesn’t show in the summary below from Yahoo! Finance, InPlay is the tone of the analysts covering SFLY.  Here’s the summary:
4:11PM Shutterfly reports EPS in-line, misses on …