Here we go again. It’s just about option expiration Friday and it’s looking like the papermoney and my personal positions are all shaping up to be quite nice. I’ve also put out a few orders for a few new May positions, basically copying the current April ones and rolling them out. I’ll post the positions when the fills come in.

As I’ve started to trade the DIA(104.84 -0.25) and SPY(110.44 -0.39) products a little more, I’m finding that the per contract commissions at thinkorswim are starting to get very expensive. I actually killed a nice DIA(104.84 -0.25) trade this evening because the commissions knocked down the ROI. I’m on the hunt for another online broker that I can use to open up a secondary account to trade larger volumes; this will very likely end up being optionshouse.com

Anyhow, I’m still a huge thinkorswim fan and truly believe they have some of the best software in the business. I’ll do some more research prior to opening a new account… only time will tell.

With about a week to go until expiration it’s time to give an update on my current positions.

Papermoney

The papermoney positions for this month are in great shape! As I write this post on Sunday, the last trade on the DIA(104.84 -0.25) was at 123 and the SPY(110.44 -0.39) at 133. Those two quotes are basically the exact midpoint of my spreads. I couldn’t ask for a better position to be in! I’ll look to see if I can close these for next-to-nothing during the week, if possible I will. Otherwise, I will likely keep these on and let them expire worthless as the week closes out.

Personal Account

I posted a personal trade on the RUT(650.45 -0.31) a week or two ago as well. Right now, that spread is in great shape as well. The Russell 2000 is about 58 points above my high strike. I don’t expect the RUT(650.45 -0.31) to collapse by 9% next week, so I’m not to concerned here either. I will of course look to close it out for next-to-nothing if I can.

The market…

I’m not expecting much from the markets over the next few months. I still think that we are in for a nice up-tick towards the end of the year; however, in the next few months things will likely just chop along.

My strategy right now is to continue with business as usual. I’ll be laying down condors and spreads as I see fit. Ideally I’ll be able to continue making a nice profit margin each month as the market moves along. I will post my trades as they come along. Good luck in your trading, please do your research and monitor your positions closely! Trade smart.

Okay, so today I put on another position in my personal account.  The size of the position isn’t very large, but I think it’s a pretty good play.  It is on the RUT(650.45 -0.31) and is a bullish Put spread.

Today I sold the April 2008 630/620 PUT Spread on the CBOE for $.50. The risk exposure is very small as the time will tick off quickly, and I think I’ll be able to let it ride or close it out for a small profit in two weeks or so.

I’ve been filled on my closing orders to buy back the current RUT(650.45 -0.31) position for $0.15 debit.  I realize that I may have left some profit on the table here – however getting my money out of the market to avoid expiration risk was worth it to me.  I have seen the RUT gap down by 15-20 points on expiration Friday and simply didn’t want to erode away those profits.

I view this as a cost of doing business profitably in the long term.

As of this morning, I’m still holding tight on the current RUT(650.45 -0.31) play.  As it sits right now, my order is out there to close this position for a credit of $0.15.  I don’t have any plans to cancel that order.

So far this morning the market is cooperating and moving up.  We will see if that continued.  As the days tick away, time value disappears and the short options lose there value.  That helps my position out nicely as I’m getting closer and closer to a fill each day.

Assuming the market remains strong today, I fully realize that I’m very likely giving away $0.15 per contract.  However, I’m still not convinced that this market is going to hold through the week. What I do not want to see is a major drop on Friday that exposes me to extreme expiration risk.

Personally, that risk is larger than $0.15 per contract.  I’d like to keep my cash and move onto next week.

Anyhow, good luck.  I’ll keep posting my thoughts as the week develops.   Trade smart!

So, let’s take a look at the current RUT(650.45 -0.31) trade.   Below is a snapshot that I took from the Analyze page in the thinkorswim platform for my current papermoney Russell 2000 position.

Here is what you are looking at.  The white line is Jan 10th 2008 theoretical value of the current position, the green is the 11th, blue the 12th and so on.  On the X axis is the price of the RUT index, on the Y axis is the profit or loss of the position, should it be sold on that day at that price.

What does all of this mean… Well, this is basically saying that as it stands right now, this position could be closed out for somewhere around $2,000 in profits, less commissions.  If the RUT index doesn’t move at all the position could be closed for approx $4,750 in profits on Monday (the dotted red vertical line).

What is interesting to look at is the decay from Friday to Monday.  You can see that we will be above the break-even point anywhere above 700 on Monday, but today we have to be above about 712 or so.  That is the time decay of options at work!

What I’m doing by looking at this chart is simply looking to see what the risk vs. reward pattern is for this trade.  If the RUT shows continued strength on Friday and shoots up towards the 725 range, does it make sense to cancel my buy order for $0.15 and simply let it ride over the weekend knowing that time is really working in my favor…

Looking at the chart, I would say it makes complete sense.  Why on earth would I want to leave profits on the table?  Time value is going to erode away over the weekend and I should be able to absorb a 15 or so point gap down in the morning and still get out on Monday for the closing value on Friday…

These charts will be watched during the day tomorrow to make my final decision.  Given the number of days to expiration and the rapid decay in the position, I may modify my closing order to be a buy back for $0.10 or so.  I do not think that I will let this position ride into expiration Friday.   I still haven’t made a final decision on this and may change my mind if it the position is still open and the market shows lots of strength in the coming week.

Anyhow, just some more food for thought.  Good luck, trade smart!

Here we go…

Bank of America BAC(14.06 +0.07) might buy Coutrywide CFC(0.00 +0.00) – here is the link to the yahoo finance story.

Big Ben wants to lower rates – here is another link, again yahoo finance

However… American Express is warning that 2008 looks a little bleak – yahoo finance.

What does it all mean!??

Well, I think it means that the mortgage industry, specifically Countrywide is about to get shored up.  This, coupled with Ben’s commentary I think has slowed down the fears that we are doing to fall apart.  With Bank of America thinking about purchasing Countrywide, that speaks to the fact that this might be the worst of the worst as far as subprime and mortgages go.

Anyhow, the American Express comes as no big surprise, the consumer is slowing down a bit, and rightfully so.

Anyhow, now that the markets have closed, I’ll sit down this evening and do some work in the analysis page of thinkorswim, I’ll post a few screen shots and give you my thoughts and plan on the current RUT(650.45 -0.31) position.

Good luck, and trade smart!

Thanks Ben!  So the fed chairmen had a quick chat today.  In his speech he indicated that there are risks to the marketplace and economy, however he said that the fed is prepared to take “substantive additional action.”  I read that as a nice big fat rate cut at the end of this month.

I’m really hoping that this is something along the lines of 50 basis points or more.  It is quite possible that they will only do 25 basis points; however, I think that would be a big, big mistake.  They are still concerned about rising commodity prices and inflation – both perfectly reasonable concerns.

This movement has sent the markets up, at the RUT(650.45 -0.31) has been moving right along with the other major indexes.  It is very, very possible that over the next two days or so I will get a fill on my $0.15 buy back.  If the markets continue to move higher today I will re-evaluate this order.

Given the extreme rate of time decay right now, there may be an opportunity to hedge against market movement in this position as a result of favorable decay.  Basically, this means that each and every day the position it in the market, it loses value.  Given that I am short that means that I am making move each day it sits out there.

Depending on market movements, I’ll open up my trusty tools from thinkorswim and head over to the analyze page.  From there, I’ll put in a little bit of special magic and be able to see the theoretical value  for each day as we move forward.  I’ll put up a little post about it so that you understand a pretty neat way to use these tools.

Anyhow, good luck and trade smart!

It had to come soon, we were simply way to oversold. Time decay is really on our side now. If the RUT can hold the current levels until Monday then it shouldn’t be too hard to get away with a decent profit.

The major indexes today staged a late day rally that really helped. Tomorrow Big Ben gives a speech that could either move things up dramatically, or push them down like a ton of bricks!

My buy order is still out there for $0.15 for the current RUT position. If I get filled, I’ll let you know, however it appears that the market is going to need to move up quite a bit to get that fill, probably another 15 points or so on the RUT(650.45 -0.31).

So… what is going on. I think we are in for another couple of rally days, and then it’s coming down again. My rational here is that earnings have just started and they look pretty decent, that should help the bulls out for a couple of days, then whenever the first big miss comes the bottom will fall out again.

In a perfect world, the RUT will skyrocket up, I’ll get filled at $0.15 then not have to worry about it any more

Somebody grab the band-aids, we need to stop the bleeding!

Wow, today just sucked.  I had been checking in now and again throughout the day to see how things were going and things looked great.  The bulls had started to rally again and it looked like we were ready for a nice bounce back up… Then the CEO of AT&T blabbed…

Ouch, it was rough.  The Dow was down 238, the RUT 19, NASDAQ 59 and the S&P 500 down 26!  Holy sea of red. Well, now it is time to take a good solid look at what is happening.  This sort of downward movement is unnerving.  The markets have pushed into truly bearish territory.  I’m still a long term bull on this market, I think that 2008 will end higher than it started, however given the current crushing drop through all technical supports it is time to start playing it safe.

The markets have been closed for about 2 hours and the current after market data is showing the S&OP futures up.  Ideally, tomorrow has a bit of a relief rally following today’s dramatic sell off.

Okay… so lets talk about the RUT(650.45 -0.31).

The RUT is a small cap index.  Small caps get hurt when the economy gets hurt. The rumor mill around Countrywide and the comments today by AT&T sent stocks tumbling, and small caps tumble really, really fast.  It must have to do with some arcane law of gravity or something…  Okay, it likely has to do with fundamentals and the stuff that drives stock values.

So, now that the RUT has busted through support at 730 and then followed that by a critical breakdown past 705, what do we do? Today – nothing. I’m going to sit tight for a few more sessions and watch.  670 is still a long way away.  I’m not saying that it isn’t possible.  In fact, according to my trusty tools from thinkorswim, there is approximately a 15.96% change that the RUT will expire at or below my break-even price.

So, this is quite a jump up from the 6ish percentage chance we’ve been looking at.  Personally, I’d agree that the chances have doubled.  We have just come crashing down, a long way down.  Let’s not forget to look at how far it can go in one drop!

The plan

First of all, I’m not going to break the rules.  If the RUT comes crashing down through 680, I’ll start to unroll my positions – quickly.

Ideally, the RUT moves up nicely and we can let time decay work in our favor.  If the index is able to get a strong move to the upside, and I can unravel the position for about $0.15 or so I’m going to.  In fact, I’m going to go ahead and put an order out today to buy back the position for $0.15.  I don’t expect that I will get filled anytime soon, however it will be there if the swing comes my way.

If the RUT rockets back upwards 40 points or so (un-likely) I’ll cancel my buy order before it is filled and let time work for me.

Basically, it is a little bit of wait and see.  I think there is still money to be had here, but it is definitely time to pay attention!  Figures… I’m traveling next week.

Good luck!