The following is a post by Christopher Ebert, who uses his engineering background to mix and match options as a means of preserving portfolio wealth while outpacing inflation. He studies options daily, trades options almost exclusively, and enjoys sharing his experiences with anyone who is interested.

When I began writing this “Boring Trades” series, I did not envision how truly boring it would become. Frankly, I was quietly hoping that at least one of my trades would go horribly wrong, so that I could portray some of the many appropriate coping strategies available to option traders. I guess I shouldn’t complain, given that every one of my trades is now in profitable territory.

Despite all of the turmoil in Europe, Occupy Wall Streetprotests, Israel’s purported plan to attack Iran, and the U.S. Super-Committee’s failure to act on a debt plan, the VIX has remained fairly steady in the low 30’s. The end result is that my Short Straddle on the VXX ETN has continued to profit due to time decay, as the share price has only fallen $2, out of the $11 required to cause this trade to become unprofitable.

The trade as opened on November 16:

  •           SHORT 1 VXX $47 Dec. 17 ’11 CALL @$5.00
  •           SHORT 1 VXX $47 Dec. 17 ’11 PUT @$6.25

The trade as of the close on November 29:

  •           SHORT 1 VXX $47 Dec. 17 ’11 CALL now trading at $3.45
  •           SHORT 1 VXX $47 Dec. 17 ’11 PUT now trading at $3.90

Unrealized gains to date: $390.00

I had anticipated a decline in the S&P, and was looking for support near the 1100 level. Had such a scenario played out, I would have been required to buy into the SPY ETF at $110. Again, my Naked Put has survived another week without any required action on my part. In fact, the small unrealized loss, which was apparent in my previous update, was replaced by a nice unrealized gain when the S&P started pushing 1200 this week; “Boring, but profitable!”

 

The trade as opened on November 16:

  •           SHORT 1 SPY $110 Jan. 21 ’12 PUT @$2.44

The trade as of the close on November 29:

  •           SHORT 1 SPY $110 Jan. 21 ’12 PUT now trading at $2.26

Unrealized gains to date: $180

For the second week running, the best performing trade in my hypothetical portfolio was one inspired by the Astrology Traders service offered by Karen Starich. The predicted weakness in the silver market has caused shares of SLW to fall below the $31 level; and the trade has continued to increase its profitability. Who would have thought that a Vertical Spread on silver could put so many shiny presents under the Christmas tree? This trade has now shown nearly one-third of its potential $3,000 profit, so I will need to re-evaluate my position over the next 7 days to decide whether to take the profit or risk losing it to greed.

The trade as opened on November 16:

  •           LONG 10 SLW $35 Dec. 17 ’11 PUT @$2.22
  •           SHORT 10 SLW $32 Dec. 17 ’11 PUT @$1.04

The trade as of the close on November 29:

  •           LONG 10 SLW $35 Dec. 17 ’11 PUT now trading at $3.90
  •           SHORT 10 SLW $32 Dec. 17 ’11 PUT now trading at $1.79

Unrealized gains to date: $930.00

 

My other astrology inspired trade is an attempt to capture a near term drop in oil prices, followed by a longer term bounce. The Calendar Spread has performed as expected for a second week, with USO shares continuing to hover around $38. With the short position having lost about half of its original value, the price action over the next 7 days will determine whether I keep that portion of the trade open through expiration.

The trade as opened on November 16:

  •           SHORT 10 USO $38 Dec. 17 ’11 CALL @$2.38
  •           LONG 10 USO $38 Jan. 21 ’12 CALL @ $3.20

The trade as of the close on November 29:

  •           SHORT 10 USO $38 Dec. 17 ’11 CALL now trading at $1.52
  •           LONG 10 USO $38 Jan. 21 ’12 CALL now trading at $2.55

Unrealized gains to date: $210.00

Best wishes to all; I’ll post another boring update next week. Should you have any questions about these and other option strategies, feel free to ask in the comment section below.

Related Posts

Boring Trades – Weekly Update (Nov 21)

Boring Trades for a Crazy Market

Are Naked Puts Risky Business? (Part 1)

2 Responses to “Boring Trades Update 11/30/11”

  1. Christopher Ebert Says:

    The short call premium on VXX fell to $0.78 on Dec. 5, which is the nearing the minimum value I felt comfortable trading without seeming greedy, so I closed the position by buying it back at a $422 gain. I may need to make adjustments to the VXX short put also, however I will postpone that decision until this week’s Boring Trades Update.

  2. jeff pierce Says:

    It’s good to be active when one needs to be instead of leaving a postion until expiration. Good call Chris.

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