September 2009 SPY dividend capture--part one

The SPY ex-dividend date is 18-Sept-09, and I am expecting the payout to be around $0.50 per share.

The downside risk on the market has made me pretty nervious about taking big positions in SPY. However I did pull the trigger on a deep in the money buy-write on 27-Aug, buying SPY at 102.70 and selling Sept 97 calls at 6.21 for a net debit of 96.49. I expect these options to be assigned on the night of 17-Sept, which is fine because my profit should be very close to the dividend value. If the options are not assigned (unlikely unless the market declines substantially) , even better, I collect the dividend too.

Bull Spread on VIX options -- more like a Bear (with result)

For quite a while I have been looking at the possibilities of creating a pseudo buy-write on the VIX by buying VXX, and selling VIX call options. The less than perfect tracking of the VXX to the VIX makes this an iffy proposition, especially if I am trying for a lower risk, lower premium position.

While investigating this approach, I noticed that the split of the bid/ask prices on the deep ITM VIX options tracks the underlying next month VIX futures contract more or less exactly. It turns out this is not surprising because this is the underlying instrument for the VIX options.

Trading the VIX via options has some unusual aspects. The VIX will never go to zero while the market is still standing (a zero value would mean no volatility in the S&P 500), and has not been below 9 in several years. When the VIX does spike up, it is a given that it will not stay up there forever. Life, and the stock market have a way of returning to normal after big scary events--so does the VIX. This returning to normal phase has been playing out in this market cycle since the big fear phase that started a year ago.

I created a bull spread, long on the deep ITM option, and short on the 22.5 options. I looked at the 25 options, but the break even point was the VIX at 23.90, which was not something I was comfortable with. A continued big rally could drop it below that. The VIX 22.15 breakeven value for the 10 / 22.5 spread felt better. The numbers below show the bid/ask spreads and the midpoint between those values:

VIX Aug 10 16.90/17.50 mid 17.20

VIX Aug 22.5 4.90 / 5.20 mid 5.05 BE for bull spread 17.20 - 5.05 = 12.15 equivalent to VIX at 22.15 (year low 23)

VIX Aug 25 3.20 / 3.40 mid 3.30 BE for bull spread 17.20 - 3.30 = 13.90 equiv to VIX at 23.90 (barely a point below the level when I entered the order)

I made the initial offer at a 12.15 debit, which was a 50% split of the current bid/ask prices. That order didn't execute so I upped it to 12.20, and it filled almost immediately. This reinforced my observation that you can usually trade the VIX options around the midpoint of their wide bid/asked prices.

Since the short term VIX usually moves in the opposite direction of SPY, a bull VIX spread really is a bear spread from an overall market perspective. But even more fundamental, this spread is a bet on volatility not dropping too rapidly in the 22 days left on these option when I bought them. The VIX dropping below 22.2 would be ugly.

The initial debit order I put in at 12.15 --and overall 0.35 premium. It didn't go , I changed it to 12.20, and it executed almost immediately.

The overall return is about 2.5%, assuming the market doesn't go crazy--not bad for a 22 day investment.

16-Sept-2009  Sept VIX option expiration 

The VIX opened at 23.28 today, so this position closed out with both my 10 (long) and 22.5 (short) options in the money--as desired.  The recent rally made me a little nervous, but the 22.5 level never seemed at too much of a risk.   The Oct options don't expire until Oct 21st (35 days from now).   Today I'm not comfortable betting that the VIX will stay above 22.5 for that long, so the 20 options will be my focus of attention. 

USO roll over -- money left on the table

I didn't want some of my USO assigned tomorrow so I rolled my Aug 34 calls over to Sep 34 calls. I split the ask-bid prices on a credit order (0.45) and it went through immediately at 4.30/4.75. The speed of execution and the nice round numbers mean I left money on the table... Probably could have gotten at least another 0.05.

September update
Bought Sept 34 calls and sold Oct 34 calls for net credit of .55.   I tried .60 first with no execution.   The quoted net credit was .4.   It definitely pays to do the combined orders on these and start the credit offer near the net debit side of things.

Last week before options expirations--too tempting to resist

After a two day blow-off the market doesn't seem to be panicking. The IV on SPY calls jumped up a little and I found a .5% return on SPY for a 4 day investment too much to resist. Did a buy-write with SPY at 99.28 and 98 Aug Calls at 1.75 for a net debit of 97.53. I did sequential market orders because I didn't want to mess around with a true debit order. The market was very quiet at the time--no surprises.

SPY's September ex-dividend date Friday 18-Sept-09

As usual it's not easy to find the ex-dividend date for SPY. It's September 18th, and I'm guessing the payout will be about .53. See the CBOE website for the official SPY scoop. Don't expect them to make it easy, or predict a payout though.

September is a little far off for me to be thinking about dividend capture ideas (especially with options expiration this Friday), but as usual I'll try to be creative..

A week before expiration -- SPY buy-write

Did a SPY buy-write this morning, SPY at 100, sold Aug 99 calls at 1.93 -- both via market orders for an effective debit of 98.07. Almost 1% return for one weeks' investment is pretty attractive--assuming of course that the market doesn't dive. I could see a correction happening next week, but there is a lot of greed running around right now...