Saturday, April 16, 2005

What a week.

I'm so glad that April Expiration is over. Last week I was coming into expiration with a nice profit, and almost all positions profitable. I had read a link on Galatime (sorry don't remember post or link) about closing positions 4 to 10 days before expiration week. Basically the gist of the article was that options expiration week belongs to the professionals, and retail traders aren't equiped to compete at that time. This brought up a dillema...part of my rationale for selling out of the money premium was to avoid paying the spread both ways on most of my trades by just letting the option positions expire worthless, but still I could see the point of the article. So what I did was I closed some of the more volatile positions that were allready very profitable. I retained all of my positions that were trading at close to worthless ($5 to $10 on the ask for the short contracts), and I retained my volatile positions that still had a fair amount of premium left that were still well out of the money. Then options week came, and the market just started selling off. I ended up having to close several positions because they were getting in-the-money, or getting close to being so. I only lost money on one position which was good, but on many of my positions I ended up giving up substantial portions of the paper profits I had last week. The net effect was I gave up around half of the profits I could have taken last week. I suppose I should be happy I had profits at all after such a bad week I guess.

The one that hurt the most was a naked 32.5 INTC put, that I had sold around January for $125/contract. I could have covered that position weeks ago at $5 to $15 per spread easily. I ended up covering for $50 dollars on Friday. Ouch.

The question is what am I going to do moving forward? I don't know. In one sense this was kind of an extra-ordinary week. Maybe I shouldn't change my methodology because of one bad week. Options have such a large spread. I really hate to pay the spread twice. I don't know what I'll do next expiration, though.

I have 6 out of the money bull-put spread positions (GOOG, GS, UNH,TWX,ATK, EBAY) so far expiring in may. All are still out of the money, but I am starting to get nervous. One more day like Friday and some will start to move into the money. I also went long fairly deep in the money QQQ Calls (don't remember which strike) on Friday to attempt to catch a bounce next week. One nice thing about May's short option portfolio is that I had decided as I was building my positions for May expiration, to hedge with index puts for the first time. I went long some deep out of the money SPY puts in an attempt to protect the May portfolio against a 10% market decline. This is my first time hedging the whole portfolio with index puts...if the market keeps tanking maybe I'll get to see how well this works...

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