Thursday, July 09, 2015

SPX Short Premium

JUL 9

Analysis

IVR: 55

With the market rallying today after yesterday's large decline, SPX is up +17 pts at the open and the VIX remaining elevated at nearly 19, I am going to sell premium in the market anticipating a volatility collapse to the closest expiration (Jul 10'). The market is trading at 2063.

The strategy to do this is to sell the 1SD strikes from current price, representing about an 84% OTM call and put. This corresponds to roughly a 16 delta for each option or less.

I am selling the 12 delta call and the 9 delta put. This distance is defining my risk. To cover the wings I am buying the next strike out for protection. Selling this nets a total of 0.57 + 0.22 credit with 1 day to expiration. This is a total of 79 on 420 risk, or 18% return on capital.




Trades

-1/c Jul 10' 2090 Call
+1/c Jul 10' 2095 Call  (net credit 0.57)

-1/c Jul 10' 2025 Put
+1/c Jul 10' 2020 Put  (net credit 0.22)

/END


JUL 10

SPX rallied on expiration, closing at 2071. I allowed the put side to expire worthless, except I purchased back the call side for 0.05 during the last hour. Just in case the SPX rallied further.

Trades

+1/c Jul 10' 2090 Call
- 1/c Jul 10' 2095 Call (net db 0.05)

+1/c Jul 10' 2025 Put
- 1/c Jul 10' 2020 Put (expire, net db 0.00)

Net P/L on the trade: 0.57 + 0.22 - 0.05 - 0.00 = 0.75

/END

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