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Un-Hedging


Written on March 2, 2009 – 12:18 pm | by admin

Today I sold my lone hedge, a March $80 SPY put.  That is a bet that the S&P ETF, SPY, will be below $80 on March 20th.  I sold it today when the market was making its first attempt below 710.  I purchased the single contract on Jan 21st for $4.50.  I sold it today for $9.70.  That is a return of over 100% in just over a month.  While the $500 profit doesn’t make up for the losses I am taking right now, it does help ease the pain.  

The reason why I decided to sell was because the market is extremely oversold at the moment and I forsee the 700 level being a bit of support.  As for my market prediction, I expect a bounce that should retest the November lows.  As the S&P gets closer to that level, I will sell the calls for my current uncovered positions and look to rehedge with another S&P put.  

Its ugly out there.  Good Luck.

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  1. 2 Responses to “Un-Hedging”

  2. By Jeff on Mar 7, 2009 | Reply

    Rick,
    I was analyzing you USO trade (looks good right now) and had a few comments. I picked that one out because I just jumped into this one on Friday. In you Open Positions section, it seems you return calculation is not correct. With a cost basis of 24.46, your return should be 10.3% on a 27 call. Also, on your open positions page, I would suggest that you show your return based on the current cost basis against the current strike price - it would look a lot better.
    I started a blog a few weeks ago and you are right; it really helps me to be more disciplined and follow my trade plan since hundreds of people will be analyzing my every move - maybe.
    Anyway, good luck and you can email me if you wish.
    Jeff

  3. By admin on Mar 9, 2009 | Reply

    Jeff,
    The way I calculate my cost basis is not by reducing it by the option premium I gain each month. That is the way I originally did it but then switched to a more complicated approach. Since I expect the buy/write to be called away in one month, my cost basis is the original buy price minus the first month option price. Any subsequent months that I hold and sell options, that money just goes on the top line. My reasoning for this is that I view my cost basis as my initial risk and by using the buy/write, I limit my risk in that first transaction.

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