Option Trading Articles: Re: [ConservativeOptionStrategies] spy dls update

Dr. Joe:

Nice trade. I was curious as to why you didn't do SPX instead of SPY. At current pricing:

10 x Dec 80 (89 Delta) SPY Calls Cost $40,800

while

10 x Dec 900 (90 Delta) SPX Calls Cost $31,460

I have never understood all the differences between these two vehicles, but it seems like SPX has big advantages as far as total money at risk and commissions.

Also, interested in what you do to protect yorself in case of a reversal ie: should SPY move down 5 points

your current position would lose about $3500. Do you use stops or contingent PUT buys like in your other trade?

I enjoy your posts.

Leo

From: joe & leigh <gass20@aol.com>
To: ConservativeOptionStrategies@yahoogroups.com
Sent: Fri, April 16, 2010 7:19:05 AM
Subject: [ConservativeOptionStrategies] spy dls update

Account Activity
Date Action Qty Symbol/Description Price Net Amount
04/15/2010 Buy To Close 7 SPY Apr10 120 Call $1.21 ($857.58)
04/15/2010 Sell To Open 7 SPY May10 121 Call $2.13 $1,480.39
04/12/2010 Sell To Open 7 SPY Apr10 120 Call $0.77 $523.96
04/12/2010 Buy To Close 9 SPY Apr10 114 Call $6.05 ($5,460.05)
04/12/2010 Sell To Close 1 SPY Dec12 80 Call $41.94 $4,178.97
03/09/2010 Sell To Open 9 SPY Apr10 114 Call $2.18 $1,946.92
03/09/2010 Buy To Open 10 SPY Dec12 80 Call $36.30 ($36,315.11)

net investment = sum (bto long calls minus stc long calls plus btc itm short calls)
= (36315 - 4179 + 5460 + 858) = 38454

with 9 leap contracts remaining adjusted cost basis is 38454/900 = 42.73
current value of leap is 43.11

net income = sum of all short call premiums received
= 1947 + 524 + 1480 = 3951

percent return = 3951/38454 = 10.27% (38 days in trade - annualized = 98.7%)

spy last 38 days up 5.94% (59.4% annualized)

if one had buy and hold strategy and entered on 3/9/2010 at 114.5 and 1000 shares would have at risk 114,500 dollars. using dls = 10 contracts at risk was 36,315

(114,500 - 36315 = 78,185 cash set aside in fixed income NOT leveraged)
use this cash to roll out leaps when current leap has about 12 months to expiration and also add more leaps during market corrections

drjoe