Friday's S&P Option Report

With our Nation's focus clearly on the debt crisis, the markets also are staying negative. The margin/maintenance requirement on my 900 PUT option has gone up some more today. It currently is at: Maintenance Requirement $969.00.

The "Geeks" of it all:

Greeks / NBBO

Symbol	Bid	Ask	IV	Delta	Gamma	Vega	Theta
SPU1900P	0.40	0.55	41.89	0.01	0.00	-0.10	0.04

The underlying Futures Contract is at:

SPU11 FUTURES

1290.60 Last

-6.20 Change

1290.60 (1) Bid

1290.70 (1) Ask

1,548 Vol

8:15:47 AM ET Time

Thursday S&P 500 Futures Option Report

With the S&P still falling on worries of our Nation's debt crisis deadline getting closer, I find the margin/maintenance requirement on my 900 PUT option has gone higher. It is now at: Maintenance Requirement $933.00.

The "GEEKS" of it all:

Greeks / NBBO

Symbol	Bid	Ask	IV	Delta	Gamma	Vega	Theta
SPU1900P	0.40	0.55	42.19	0.01	0.00	-0.10	0.04

The underlying Futures contract is at:

SPU11 FUTURES

1297.90 Last

-1.00 Change

1297.90 (18) Bid

1298.20 (4) Ask

2,493 Vol

8:28:47 AM ET Time

A Recent Article I Wrote

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How to Make Money Trading the S&P 500 Index

Not For Beginners

The method of trading described below is an advanced trading technique and is definitely not for beginners. Although the technique is relatively simple in design, if one is not knowledgeable in all of the different aspects of options trading and the repercussions that can occur, bad things will happen. That being said, let's move on.

Enlightenment

I had been trading Commodities for about 15 years when I accidentally stumbled upon this strategy being used in a large investment firm with dozens of professional investors using dozens of strategic maneuvers to lure investors into their firm. One of the trading techniques stood out like no other. Although I made a few modifications to his strategy, the principal is basically the same.

Fact

We all know how NASDAQ, the DOW and S&P work. Follow the charts and they go up and down on a regular basis. If you took an overlay of all 3 and laid them on top of one another you would see they all follow the same paths similarly. Economy goes up, the chart goes up. Economy goes down, chart goes down. The part of the fact I like is as the charts go up and down, it is almost steadily climbing upward. This gives the trader an opportunity to prosper.

The Idea

What we want to do is pick a low point in the S&P 500 where it hasn't been in quite some time. A point that has some higher volumes of trading going on in the options chains and has a low initial margin/maintenance requirement for selling PUT options. Currently the S&P is at 1334 and moving. We want to be WELL low of where it currently is.400 points out of the money is a good place to start your search. We also want to be about 60+ days into the future. There we start pricing PUT options that we are going to sell.

Research

Now we know what we are looking for. Let's look at a current chart and see what we can see. I am sure if you are an active trader you have resources of your own for checking charts, graphs and pricing options. If not, I like using this chart because it goes back to 1960.

http://stockcharts.com/freecharts/historical/spx1960.html

Now to find an put option that meets our criteria. If you don't have current resources, try this:

http://www.cmegroup.com/trading/equity-index/us-index/sandp-500_quotes_globex_options.html?exchange=XCME&foi=OPT&venue=G&productCd=SPU1&underlyingContract=SP&floorContractCd=SPU1&expMonth=201109

The 900 PUT option falls into the criteria we require for a successful trade. Again, your brokerage firm should have the calculations or calculator to find the initial margin/maintenance requirements.

The Trade

Entered Trade

Sell-1 (SPU1900P)
Price:------------------------------ 0.45
Cost:--------------------------($112.50)

Requirements

Total Cost--------------------($112.50)
Initial Requirement---------- $811.25
Maintenance Requirement $649.00

Total Requirements--------- $811.25
Estimated Commission------ $12.99

Breakdown

What did I just do?
Sell-1 (SPU1900P) = Sold one S&P 500, September 2011, 900 Put option.
Price-0.45 = The cost of the option = $250.00 X 0.45 = $112.50.
Please notice that the total cost is in parenthesis. This usually means a negative but since I sold it, It now becomes a double negative which makes it a positive.
Initial Requirement $811.25 = Money I needed to have in my account to place the trade.

Maintenance Requirement $649.00 = Money I need to maintain the trade. Cannot have less than that amount in my account.
Estimated Commission $12.99 = The cost to place the trade.
The final total of this trade is = I just made $99.51 on less than $1000.00.

Now What?

The option I just sold will expire on September 16th, 2011. If the S&P does not drop to 900 in the next 60+ days, the option expires worthless and I do it again. If the market moves up, the cost of that option moves down, along with that is the time value. It gets worth less every day as it gets closer to expiration. Most of the time even if the market moves down towards the option, the margin remains the same due to the devaluation of time. You can also buy the option back at any time if you wish to close the trade. Say the "Doomsday" report just came out. Of course, we're ALL in trouble then.

Summary

Well that's it. Actually pretty simple, pretty basic. If you have access to all the tools required, paper trading is always the best way to start. The way I do it now is to wait another 30 days and put another trade into place. It is better to wait until the market is on a down swing when doing this for you may pick up a few more dollars or you can move down farther in the option chain and make the same amounts. Either way, it works.

Tuesday S&P 500, 900 PUT Option Report

Not much happening yet this morning. Almost like everybody's waiting for Congress to do their thing. My margin/maintenance requirement on the 900 PUT option is up just a bit. Maintenance Requirement $632.00.

The "Geeks" of it all:

Greeks / NBBO

Symbol	Bid	Ask	IV	Delta	Gamma	Vega	Theta
SPU1900P	0.40	0.55	44.01	0.01	0.00	-0.09	0.04

The underlying Futures Contract is at:

SPU11 FUTURES

1336.10 Last

+2.60 Change

1336.00 (2) Bid

1336.30 (5) Ask

1,402 Vol

8:25:19 AM ET Time

Monday Option Report

This morning the S&P 500 is down a bit. It will be interesting to see what happens as we move closer to our Nation's debt crisis deadline. The margin/maintenance requirement is at: Maintenance Requirement $534.00.

 The "Geeks" of it all:

Greeks / NBBO

Symbol	Bid	Ask	IV	Delta	Gamma	Vega	Theta
SPU1900P	0.40	0.55	43.20	0.01	0.00	-0.10	0.04

The underlying Futures Contract is at:

SPU11 FUTURES

1331.50 Last

-9.50 Change

1331.30 (3) Bid

1331.60 (15) Ask

1,915 Vol

8:28:24 AM ET Time

Friday's Option Report

Today we find the S&P 500 up a little more. It's just kind of bouncing around the 1340 range. The volatility has diminished some and the margin/maintenance requirement has also been subdued. Today's maintenance requirement is at:
Maintenance Requirement $570.00

The underlying Futures Contract:

SPU11 FUTURES

1341.30 Last

-1.20 Change

0.00 (0) Bid

1340.70 (0) Ask

23,449 Vol

12:24:52 PM ET Time

The "Greeks" of it all.

Greeks / NBBO

Symbol	Bid	Ask	IV	Delta	Gamma	Vega	Theta
SPU1900P	0.00	0.00	41.17	0.01	0.00	-0.08	0.03

Thursday Futures Option Report

The 900 PUT option I sold has a little higher margin/maintenance requirement today, even though the market is still moving slowly up. Today's maintenance requirement is: Maintenance Requirement $773.00. 

The underlying Futures contract is currently at:

SPU11 FUTURES

1327.30 Last

+6.00 Change

1327.60 (10) Bid

1328.00 (5) Ask

3,726 Vol

8:30:11 AM ET Time

Greeks / NBBO

Symbol	Bid	Ask	IV	Delta	Gamma	Vega	Theta
SPU1900P	0.40	0.55	41.25	0.01	0.00	-0.10	0.04

Wednesday Morning Trade Update

With a little bump up in the S&P 500 we see that the margin/maintenance requirement has gone down again. It now is currently at: Maintenance Requirement $746.00. 

The underlying futures contract is at:

SPU11 FUTURES

1322.70 Last

+1.50 Change

0.00 (0) Bid

0.00 (0) Ask

12,300 Vol

10:02:31 AM ET Time

Monday Option Report

The S&P 500 is down a little more today. But because of the loss of time value, my margin/maintenance requirement has stayed the same. I would expect if the Equity Indexes continue to drop more tomorrow or even possibly for the rest of this week, the numbers will go higher. But, for right now, it is the same:
Maintenance Requirement $857.00. 
The underlying futures contract is at:

SPU11 FUTURES

1302.10 Last

+1.70 Change

1302.40 (9) Bid

1302.80 (3) Ask

107 Vol

8:27:33 PM ET Time

 

Weekend Option Report

My maintenance/margin requirement on the 900 PUT option that was sold is now at: Maintenance Requirement $857.00.

The underlying futures contract is at:

SPU11 FUTURES

1314.90 Last

0.00 Change

1312.60 (0) Bid

1314.00 (0) Ask

0 Vol

5:53:43 PM ET Time

July 14th Option Update

The S&P 500 is down a little more today. After examining the charts I would guess that it will bounce around on it's way down until it gets to anywhere between 1250 and 1275. Just a guess. We'll see. The margin/maintenance requirement for our 900 PUT option today is: Maintenance Requirement     $887.00.

Although the cost of this futures option is now at $200, (I could have MADE a few extra bucks) we can now see that I should have waited (patience being the key word) until the market has dropped. But what would have happened if it kept going up??? You see you really can't tell. That's why we want to make sure we are way "out of the money" when we put these type of trades together.

Another good resource book that has basic and a few advanced techniques is Starting Out in Futures Trading. It is an older book published in 2001 but it contains valuable information that the futures trader will require. That's all for today. See ya in the pits!

Todays Option Update

The S&P is up a bit today.

SPU11 FUTURES

1311.00 Last

+0.30 Change

0.00 (0) Bid

1313.50 (0) Ask

19,815 Vol

3:39:36 PM ET

However, volatility and lag into the options end of the S&P  has raised my maintenance/margin requirement up a little. It is now: Maintenance Requirement: $929.00

Online commodity trading is exciting and can be very lucrative to any individual that has enough knowledge and expertise to do it wisely. I personally prefer doing the options trading as the risk is much lower. A good book that can start you on your way if your interested in starting quicker is Trading Futures For Dummies. This book is loaded with useful information if you are NOT already familiar with basic futures trading.

Futures trading is not something you learn overnight. It took me over a year to learn the basics and become successful at it. Knowledge is the most important key when trying to understand futures contracts and how they work. See ya in the pits!

Trade Update

The market has moved down again, toward my position. I expected this as the market always moves up and down. I also placed the trade on an upward spike. So when we examine the numbers today, we see that everything has changed, again. This is a perfect example of day to day changes and how your account is affected by price fluctuations in the S&P 500.

Entered Trade

	Price	Cost
Sell -1 (SPU1900P)	0.70	($175.00)

Requirements

Total Cost	($175.00)
Initial Requirement	$1,022.50
Maintenance Requirement	$818.00
Total Requirements	$1,022.50
Estimated Commission	$12.99

What does this tell us? First of all, nobody can ever tell when a spike, on the way up, will stop. Or, if it is on the way down, how far down it will go. We really don't care how far up it goes but we DO care how far down it goes. I don't think we will hit a double dip recession before September 16th (option expiration) but anything is possible. If I was getting cold feet at this point, it would cost me $175.00 to buy this option back PLUS the commission fee. BUT, my feet are still warm and toasty.

When I "FEEL" that this downward trend is done, I will begin searching for another option to sell. See ya in the pits!

Trade Executed

The trade was placed today and I actually made a little more money than was previously anticipated. Margin/maintenance numbers stayed the same due to the loss of the time value of the option. The numbers are below.

Entered Trade

	Price	Cost
Sell -1 (SPU1900P)	0.55	($137.50)

Requirements

Total Cost	($137.50)
Initial Requirement	$811.25
Maintenance Requirement	$649.00
Total Requirements	$811.25
Estimated Commission	$12.99

Before We Move Forward...

Let me add some credibility to my blog. Let's assume I am a newcomer to online commodity trading. I only have $5000.00 to play with. The trade will be in my favorite, the S&P 500 index. Now I only have $5K to work with but I need to build this up because I want to do this full time. So I have to start small, not take any chances and NOT get greedy. It's the only extra money I have. Most online commodity brokers require a minimum of $5K to open an account. Finding a brokerage that even LET'S you trade "Naked Options" can be a challenge in itself.



So let's put it  together. I check the numbers and I find a September 900 PUT OPTION I can sell that fits my criteria. What's my criteria? The most I can make while holding as little margin as I can. Not an easy task but a little research goes a long way. Over the coming weeks I will be posting the numbers for this trade so we can see actual proof of how simple and calculating this method is.

Entered Trade

	Price	Cost
Sell -1 (SPU1900P)	0.45	($112.50)

Requirements

Total Cost	($112.50)
Initial Requirement	$811.25
Maintenance Requirement	$649.00
Total Requirements	$811.25
Estimated Commission	$12.99

     
  
Now don't be fooled by the RED!  Red is negative but numbers inside parenthesis are negative to whatever is inside. What that means is I get $112.50 minus the commission added to my account. This leaves  me with a profit of $99.51. Not bad  for an hour's worth of work.

I'll be breaking the actual trade down and what all the numbers mean in the coming days. I will also post margin requirements daily as they change from day to day. There is a deeper strategy to this trade than meets the eye and the closer we get to the expiration date which is September 16th you will better understand the reasoning. See ya in the pits!

Happy 4th of July!

To all of you celebrating this monumental day in America's history, I bid you all a SAFE and HAPPY Holiday weekend!

Out surfing...

I decided to go out surfing today and look up other blogs that cover the same or similar idea that I am covering. An interesting fact that I am finding out is most of the "Blogs" I have found have no current postings. Some are from 2007 up to 2010. I'm probably not looking in the right spots and will continue to "surf". If any of the readers would like to help me out on this, it would be appreciated. Thank you!

More info on the S&P 500

I have just recently found more useful information on the S&P. This website is absolutely loaded with great information.
http://allfinancialmatters.com/
The site posts 6 month total returns going back to 1926.
The June 23rd, 2011 posting is S&P specific.