I’ve tried to get some fills on a few good SPX trades over the past 2 days and haven’t been able to get the premium that I would like. Given that the SPX wasn’t working out, I figured it was time to start hunting through a few other indexes to see what I could find. The search turned up a pretty nice trade in the MSH. I’ve been playing the MSH sporadically for the past few years; it’s a fairly volatile index, but this trade looks pretty good.

I put the trade on about 25 points below where the MSH is trading today, and will try to cover a top in about a week. The index (and the markets) look poised for a bounce, so I’m holding off on opening any call spreads. I’m thinking that the MSH is going to pop up a good 10-15 points in the next week or so and at that time, I’ll open up a position on top.

Here is the trade:

• May 2006 MSH 480/470 Bull Put Spread
• Sell 480 Put & Buy 470 Put
• Filled for $0.85 Credit
• ROI 8.5%

Based on volatility this trade is a bit riskier than most of the trades that I put on. According to my analysis page in thinkorswim the index has about a 12.49% chance of expiring below 480. I have somewhat discounted this risk as the markets look poised to move upward. I have also hedged myself with a ton of alerts on the index. If it starts to move down too much, my cell phone will light up like a christmas tree and I’ll get out quickly!

This trade, along with the MSH play in the papermoney account will be good ones to keep an eye on. Once the month is over, I’ll take a look back and see if I want to include MSH into my normal rotation. Of course, my two favorites are still the SPX and the RUT. As always, I’m still keeping an eye out for additional trades, and will post more as the month develops. Have a great week, and grab my feed.

Categories: Options Trading, Papermoney