Wednesday, November 10, 2010

Bookkeeping: Selling SPY Puts (Again)

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I made this exact same trade (round trip) yesterday with solid success, and I repeated the trade (with a smaller exposure, only 3%ish versus 5%ish yesterday) late in the day as the S&P 500 hovered near the lows of the day. With about 12 S&P points in hand, I am selling the SPY 123 puts for about a 32% gain.  While I could be greedy and wait for the 13 day moving average (S&P 1201), I held this position for roughly 65 minutes in market time so I am not going to look down on those type of gains by selling at S&P 1204s.    The goal is to maximize gains with as little market risk as possible, not squeeze every dime out and expose my flanks.   If you annualize 32% gains over 65 minutes... even Bernanke would be proud of the 'wealth effect'.



Now if the market holds true to form, we'll fall no farther than S&P 1200, where the buying robots will show up as they have repeatedly for 11 weeks.  I still have a hard time buying those dips, because it is so obvious in nature it feels like it should blow up - but thus far has been a constant winner for the perma bulls.  If we can break the 13 day moving average... and then 20 day moving averages, that changes the complexion of things but until that event everyone plays the same pattern until it fails.  Rubber band theory continues to work almost to perfection with a day lag at most  [Oct 13, 2010: Pulling the Rubber Band]... buy at the 13 day moving average, sell / short when the S&P 500 gets about 2.5% over the 13 day moving average.  Rinse. Wash. Repeat.  Didn't even need a PhD on staff to figure it out.

As an aside, silver margin requirements were raised yesterday as the exchange saw an influx of mass speculation, which helped contribute to the bursting of the parabolic move.   This is something regulators could have done with stocks in 1999 but instead they celebrated bubbles (or pretended they could not see them) rather than trying to prick them along the way.  

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