Sunday, December 20, 2009

Option activities for December 2009


Options involve risk and are not suitable for all investors.  Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (the "ODD").  Copies of the ODD are available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, Illinois 60606.  Any strategies discussed, including examples using actual securities and price data, are strictly for illustrative and educational purposes.  In order to simplify the computations, commissions, fees, and margin interest and taxes have not bee in included in the examples used in this presentation.  These costs will impact the outcome of all stock and options transactions and must be considered prior to entering into any transactions.  Investors should consult their tax advisor about any potential tax consequences.  No statement within this presentation should be construed as a recommendation to buy or sell a security or to provide investment advice.

Summary of option activities for December 2009:
  • short 14 put contracts and 8 call contracts
  • assignment for 2 contracts of JPM at strike $42 on expiration day(200 NEW shares, 100 shares per contract)
  • offset 6 short puts during the last two trading days as 1 contract of GS 165 put was In-the-Money (ITM) and 5 contracts of BAC was At-the-Money (ATM);  took a small profit from all of them
  • all in all, 8 short puts and 8 short calls expired worthless on the 18 December expiration day
I am in the process of putting up a trading plan for January before the new cycle begins.  Obviously, the market is dynamic but a good and sound initial plan helps you to visualize what you want to accomplish for the month and you can adjust your positions as you go along.

The next important thing is to to get into positions EARLY in the cycle to enjoy MAXIMUM time decay.  This is because for option sellers, the option premiums are the maximum profit you can receive in the trade.  For my positions, the volatility is only moderate (>30) so most of the money will and must come time decay.  Entering into positions early allows you to accomplish that.

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