Friday, January 22, 2010

S&P 500 Gap at 1104 Fills

As we mentioned this morning that gap at S&P 500 level 1104 wanted to be filled [Small Gap on S&P 500 at 1104 Yearns to Be Filled], and after a reactionary rally off S&P 1105 this AM, we have now used the afternoon to "fill the gap".  (formed between Friday Dec 18th, and Monday Dec 21st)

While there is another gap down at S&P 1075, I assume that will be a matter for another day.

Pending how these last 75 minutes go, I expect to sell some (much?) of the put exposure bought earlier today into the close for an excellent profit that is hedging away losses in the long side of the portfolio...

...S&P is at 1101 as I type this...big round numbers (i.e. 1100) tend to provide some support as well, if for no other reason aside from human psychology.  Let us watch how that level is treated and adjust accordingly.

While yesterday was a rotten day, today has been fun; takes us about 24 hours to throw away our glass of Kool Aid and find our bear hat. ;)  That thing was buried in the back of the closet...very dusty to boot.

EDIT 3:12 PM - S&P 1100 only provided support for a few minutes, one small cursory bounce... 1097 as we type... if there is a panic close we'll definitely be getting rid of our puts into the panic.  Still holding for now as surely stop losses below 1100 are being collected as we speak type.

EDIT 3:28 PM - now at mid December lows of 1095... this one might hold better than the psychological level of 1100.  If that does not hold, next stop is S&P 1085 which believe it or not is the bottom of the 6 week range (box) we experienced in November/December 2009.  Fingers getting itchy to sell SPY puts... still holding.

EDIT 4:00 PM - ugly close.  I waited too long and only 1 of my 2 sales went through - I missed the closing bell by a few seconds on the other.   I began with a 6% allocation spread among these 2 instruments (puts), and wanted to sell roughly 70% of my exposure in the last minute, but only sold 20%.  So of the original 6% we still have 4.8% or so. The value of the contracts spiked so the end of day proportion of the total portfolio is higher than I am stating above, which is based on their value when I opened the contracts.  i.e. I invested $110K and the value now is $180K so a larger part of the end of day portfolio.  Here is a snap shot with about a 15 minute delay (before the sale went through).

[click to enlarge]

To put into perspective the long side of the portfolio was down perhaps $25-$30K, so we made up for all losses, by a factor of 2x.  With only a fraction of our capital exposed... worked out very well. 

I am sure a stop loss or two hit some of my long positions in the closing moments, I'll have to review that as well. 

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