Friday, March 18, 2011

4-1 for March

Four winners, one loser for the March option cycle. A relief rally saved my bacon on my three short SPY puts, the fourth winner was a TBT short put. The big loser was a closed trade on an April XME short put. Overall, a sliver of profit, as the one loser was a big one and the four winners small ones.

Again, it serves to illustrate how difficult it is to buy way out puts and hold until expiration. Even, with the news events from Libya and Japan, and wild market action, none of the SPY puts ever came into the money and went to a 100% loss if held to expiration. That said, at the worst of the selling, the SPY March 123 put went to a possible profit of 250%, if a person timed the best exit. That's the lure, the big winner, the home run.

In 2008, some of short puts did go well into the money, so the lesson isn't to sell puts willy-nilly and never to use stops. However, it is an exceptional market that goes straight down. Again, a 10% correction in SPY is common, but 10% down in a single month tends to be an exceptionally bad month.

Going forward I am net long SPY, TBT, GLD, and GDX, mostly with short puts. Turns out that my decision to skip selling short gold puts this cycle was a mistake as gold and miners held up ok.

The NCAA basketball tournament is sometimes called the big dance. For that theme I link the Lee Ann Womack song "I Hope You Dance (youtube link). Enjoy.

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