Ex-dividend Dates for Schwab's new commision free ETFs 23-Dec-09

Please go to this post in sixfigureinvesting.com  for the latest dividend information.

ETF ex-dividend information AGG, IEF, JNK, TIP, TLT and more

Please go to this post in sixfigureinvesting.com  for the latest dividend information.

Back into Oil 27-Nov-09 Buy-Write at USO 38.20 / 1.49

USO has been on a pretty negative trend recently.   The big question is whether it will drop through the resistance level around 38, or will it start trending back up.    With the general economy on an uptrend I doubt that oil prices are really going to drop much, so I bought USO at 38.20 and sold to open Dec 38 calls at 1.49 for a net investment of 36.71.    If USO just stays where it is the gain at the option expiration would be $3.5%  for a 3 week investment.

Click to enlarge

AGG dividend capture - 1-Dec 09

AGG goes ex-dividend next Tuesday, the 1-Dec.  Last month's payout was .32, and expect about the same for this next distribution.   I looked at IEF, but it has been on a very strong upward trend that looks peaky, so I decided to go for AGG, which has been pretty stable.  I bought AGG at 105.52.

Ex-Dividend DIA, JNK, BIL, ITE, TLO, IPE, LAG, TFI, CXA, INY, SHM, BMX, , WIP, MBG, ITR, MWZ, LWC, CWB, VRD

Please go to this post in sixfigureinvesting.com  for the latest dividend information.

Covered short on Gold

I'm not a gold bug.  Unlike oil, which people use whether they want to or not, gold is generally a optional purchase.  Certainly there are some industrial uses for gold, but at over $1000 an ounce people are pretty motivated to use as little as possible, or develop alternate solutions. So I'm not that impressed with the long term prospect of a big pile of metal locked somewhere in a fortress that is expensive to hold, doesn't generate dividends, and doesn't create value.

I think the current rise is a speculative bubble--but knowing when it will burst is always a challenge.   I'm very willing to give up any up-side on gold, in order to make money on the downside.  I sold GLD short at 114.44 and bought 108 Dec calls at 7.08 for a net credit of 107.36 per share.  If gold continues its upward trend I can only loose .64 maximum per share, but if things turn-around the trade will turn profitable well before the 108 level is reached.   In retrospect I probably would have been better just buying 109 Dec puts, but for some reason I have always felt more comfortable with calls.

Dividend capture in December

 Most ETFs with monthly payouts (e.g., AGG, IEF) go ex-dividend 1-Dec (week from Tuesday), so I will be looking at some dividend capture plays for them.    Last month's IEF dividend capture took over 3 weeks to play out, and some days I was a point or more in the red. Even though the position ended up at the maximum profit I'd rather not repeat that level of exposure--I do expect interest rates to start going up pretty soon.

AGG  recent price 105    last dividend  .32
IEF    recent price  92     last dividend . 26

I will also be looking at a JNK dividend capture with an inverse SPY (SH or SDS) as a hedge.  I've noticed that JNK is surprising well correlated with the S&P 500 index.

JNK  recent price 38  last dividend  .38

In addition I'll investigate buying DVY in late December (ex-dividend 23-Dec) with an inverse DOW as a hedge.  It had a $0.39/shr payout last September (it closed Friday at 42.67) - and effective annual yield of  ~3.8%

December pseudo covered call on VIX

In the next couple of weeks I'm expecting a slight correction in the markets, so I expect VIX  / VIX futures to jump up a bit from their current 21 / 23.20 levels.   I bought 30 Dec 10 (VIXLB) calls at 13.19 and sold 30 Dec 20 calls (VIXLD) at 3.54 for a net debit of 9.65.   I will put a close out order in place around 9.90, hoping to cash out early if the markets switch into fear for a while.  Any serious uptick in the VIX should drive the time value in the short options towards zero, while the long 10 calls should closely track the underlying December VIX futures.

As usual, I found that you can buy/sell VIX options at prices that split their bid/ask prices plus .05.  So for example if the 10 Dec call  quote is 12.80/13.50  -- a large .70 spread, the call can be bought for about 13.20 and sold for about 13.10.

Covering up oil and consumers

Sold December 40 USO calls at 1.60 this morning to cover my long USO position.  My breakeven on this investment is 38.07.

Nice 1.5% bump in XLY (consumer sector)  this morning--sold December 29 XLY calls at .75 to cover my long position.

November equity option expiration aftermath...

As expected my SPY (position 1, position 2) , IEF (dividend capture) , and USO (position 1)  ITM covered call positions were assigned this weekend.   My Nov 42 USO calls expired worthless, so I still hold USO in that position.  I'm hoping for a bump up in oil prices, hopefully enough to get USO back near 42, before I sell calls against that position again.

  I also still have my XLY position, it closed Friday at 28.69, so the Nov 29 calls I sold last week zero'd out.

I expect the market to have a couple more down days, plus I prefer to not be invested in calls with 4 weeks to go before expiration, so I plan to primarily be in cash this week.

Not done yet...

Based on the trendline shown below, this downswing isn't done yet.   I'm looking for this fear phase to break 1080 on the S&P 500 before we start back up again.  Click to enlarge.

VIX option expiration and VIX option payout

For an updated version of this post see Trading VIX options.

November 2009 VIX options expiration value = 22.54

The November VIX options expired with a print, or settlement value of 22.54.   This is recorded as the symbol VRO.  Lookup symbol:   ^VRO (Yahoo),  $VRO (Schwab).   The cash VIX opened this morning at 22.35.

The SPY trendline comes through again

After a head fake on the 12th, the S&P 500 came through again, breaking through the high range of the trendline.  All my SPY buy-writes are well in the money, but my Nov 41 USO calls are currently about .5 OTM, so I'm hoping for a little more pop there to get the maximum profits out of my USO buy-writes there.   Assuming the market doesn't tank in the next couple of days all of my positions will be closed out with assignments (assuming USO goes over 41).   I may roll-over the USO positions to December calls. because I don't see much downside risk there.    Click to enlarge the graph.

Some "long" house cleaning -- before we go back into fear mode...

It appears that we are close to finishing the latest greed phase on the SPY trend line.  In anticipation of this I am cleaning out some long positions I have had for a long time:

MWTRX   Mutual Fund Intermediate Bond fund

SSAIX International Stock fund

XLY  Consumer ETF  -- wrote a $29 November  ITM covered call to close this out

XLE   Energy

IJH  Midcap  S&P 400

Of course, the market might decide to go on a big upswing instead of going back into fear, but I really am expecting the market to go into a more lateral, higher volatility mode pretty soon.

Close out of my November VIX position

I closed out my VIX bear spread position for a net debit of .10, giving a profit of .35 per option.  Given the behavior of the market yesterday I was going to cancel my GTC order and hold on a bit more, but the order filled. Still a  nice profit.

Early Christmas present from IEF--or give and take?

I have not so patiently waited to close out my IEF dividend capture position.  I am still short IEF 91 Nov Calls and long IEF.  The calls have been showing IVs that have moved from really high to outrageously high.   They have been marked as being adjusted, and today I found out why--IEF declared a long term capital distribution of 0.51 for shares owned before the 2nd of November.  This was certainly not a routine distribution, unprecedented in at least the last 5 years.   As near as I can tell this surprise distribution will be extracted ($50.90 per call) from the short call holders who held the short positions before the distribution if the options are called.

With this information the premium price for the calls makes sense. Since I own the underlying this doesn't hurt me--I've already collected the distribution, but it seems like it could be unfair to traders with net short positions on call options.

If my interpretation of this modified contract is correct, ITM options will carry a .51 premium at expiration in addition to their intrinsic value.

VIX quotes, VIX option quotes, greeks

You can get delayed VIX quotes on Yahoo with the symbol ^VIX

You can also get VIX option quotes here.  Go to here for the correct expiration dates (always last trading on a Tuesday, expiration on a Wednesday morning)

You can get free delayed quotes for VIX options on LIVEVOL that also provides correctly computed greeks for these options--something none of the big brokers gets right. .

VIX--the third dimension of monitoring the market

The market was pretty nervous today, but didn't seem too panicky. I was wishing I had been a little less demanding on closing out my bear VIX spread.  I have a GTC order in with a debit of .10 that probably came within a few cents of filling a few days ago.  If I had settled for .15 I would have been out with 66% of my maximum profits.  Then I could have gotten back in at least a credit of .30.  Oh well, it is always so easy in retrospect.

  I like to monitor the minute by minute intra-day charts of  SPY, VIX, and VXX.   It feels like the volatility indicators add a third dimension of visibility into the market.  Not only can you see the price movement over time, with the VIX you can see the nervousness of the market in real time too.   The VXX, being driven by the VIX futures feels more like the medium term view--the trader view, rather than the emotional gauge.

  It would be interesting to know primary and secondary forces driving the moves in VIX on a day like today.  My guess is that the main driver increasing the VIX on nervous/ strongly down days like this is demand for protective puts, and secondarily arbitrage, or just market maker compensation on the call side.  I wonder if anyone has ever figured out how to get data on this topic.          

Round trip time from fear to greed and back = 22 days

The SPY trendline continues to provide reliable buy and sell signals.  If only we had known this ahead of time we would be insanely rich by now.   Of course this must end, probably pretty soon, but I think it is a beautiful illustration of human psychology.  Click chart to enlarge.

I looked at the trading days between the peaks and the valleys from mid August until now.  My somewhat subjective data is shown below:

Cycles of fear and greed

Timeframe (mode)	Trading Days	Summed days: fear+greed
Mid August --valley to peak  (greed)	9
		12 (valley to valley)
Late August --peak to valley (fear)	3
		17 (peak to peak)
Early September --valley to peak (greed)	14
		21 (valley to valley)
Mid September --peak to valley (fear)	7
		22 (peak to peak)
Early October --valley to peak (greed)	15
		22 (valley to valley)
Mid October --peak to valley (fear)	7
		12 days so far (peak to peak)
Early November  --valley to peak (greed)	5 so far

Some observations:

• As we have all seen, things go down a lot faster than they go up.  In this case about twice as fast
• This fall the full cycle from fear to greed and back again has been around 22 trading days -- about a calendar month.  In this black and white environment -- doom and gloom galore + a raging bull rally, is this our natural rhythm? 
• The cycles have been on the high side part of the cycle when options expire each month. Coincidence?   Certainly a happy alignment for covered call writers like myself. 

As I have said, this trendline must end before too long.  My prediction is that the S&P will hit 1160 and then move into a trading range.  Why 1160?  Because looking at the longterm chart the only reasonable resistance point is at that level -- from back in 2004.   Economically it makes no sense that a trading pattern 5 years ago should matter, but humans look for patterns, experience fear and greed alternately, and trade according.

VIX Options and Equity Expiration Dates Nov, Dec, Jan

The next three expiration dates for VIX options are:

November 18th
December  16th
January 20th, 2010

The next three expiration dates for Equity options are:

November 21th

December  19 th

January 16th, 2010  (week before VIX option expiration)

Source:  

  2010 OCC Calendar

USO Covered Call -- Hedging the price at the pump

There aren't many opportunities to hedge our market positions with our personal finances.  It's nice that if I bet wrong going long on USO, that I will be paying less at the pump the next time I fill up, and if I'm right I've more than recouped the extra cost.  

 Doubled up on oil, buying USO at 40.97 and sold-to-open Nov 41 calls at 1.30 for a net investment of  39.67.   I did sequential market orders because I have not been getting quick fills on combo orders on USO.

Confusion about the VIX and VXX continues

It is possible that the confusion about VIX, VIX options, and the VXX will be permanent.  This article is typical.

One quote: "The recent market action has pushed the 30-day historical volatility up to 20 percent, but clearly the VIX continues to price in far more volatility than there actually is."

People seem to want the VIX index to reliably track the historic volatility.  While this is an interesting comparison, the VIX is tied to current (minute by minute) SPX options premiums.  Do people really think that options traders give a rip about historical volatility?   The premium (usually expressed as implied volatility) of these options is about supply and demand together with fear and greed.    On a fearful day like today people are willing to pay a premium for protective puts--hence the VIX goes up.  The maximum volume on a specific strike was more than 2X for puts (23000 at a strike of 1000) compared to calls (8465 at a strike of 1050).   The VIX index is not a market, you can't buy or sell the index--it is a metric! Like the temperature gauge on your car it just measures something.

Another quote: "But when the VIX is above the VIX futures, as it is now, then the VXX becomes a great way to play a further pop in volatility. The VXX is based on the futures trading at 28, and the VIX is above 30. The futures are pricing in a lower VIX, but if the VIX continues to climb, the VXX will actually outperform."


Huh?   Outperform what?  When the VIX index is strongly up VXX  and VIX options will always be below the VIX,  because they are based on VIX futures--which inherently lag compared to the computed, realtime VIX index.   The VXX, being a mix of the nearest, plus the month out futures has no real potential to out "pop" the VIX options, which themselves will always be out popped by the VIX index itself.   As far as I can see the only advantages the VXX has is that it is not a confusing thing like a future, or an option, and you can actually buy it.

Still in IEF -- Dividend capture

My IEF calls did not get called over the weekend, so I will collect the .2609 dividend per share on my position.  It's not profitable to close out with the current premiums on the options, so I am holding onto the position.  With the dividend my break even point is now 90.55

Back into Oil -- November chapter

I'm not convinced that USO won't settle back into its old trading range of 34 to 38, but it has been hovering around 39 to 41, so it could be establishing a new support level..    I tried some combo buy-write orders this morning, but didn't fill--the market was pretty active.   Ended up doing market orders, buying USO at 39.91 and selling to open  Nov 39 calls (UBOKM) at 1.97 for a net investment of 37.94 per share.

After the SPY trendline breaks, then what?

The current SPY trend line obviously can't continue indefinitely.   Although I don't think charts predict the future, they do show previous psychology, so I took a look back at 12 years of data.   A couple of interesting things stood out to me.   In that time span there have been three fast recoveries after significant corrections.   The one in Sept 98 through May 99 was after an approximate 20% correction (seems mild now). Bear phases beginning in 2000 and 2008 both ended in March, and then began dramatic climbs--the 2003/2004 climb lasting a full year, and the 2009 bull run with 7 months so far.    With the 1998/1999 and 2003/2004 climbs, steep trend lines both ended with a transition into a trading range,where the S&P 500 traded in a fairly narrow range for quite a while.      Click on chart to enlarge.

Some people are predicting a "W" shaped recovery, with the market going into a sharp correction.  Others, probably gaining in credibility now that we are supposedly at the end of this recession, are predicting a continued bull run, or a transition into a "square root" shape.    My guess is that we will go into a trading range--which works out fine for me if I can figure out the support and resistance lines relatively quickly.

The chart below superimposes the 2003 and the 2009 recoveries on top of each other.  The SPY prices from 6 years apart are absolute (not scaled).  So much for a buy and hold strategy...  On the other hand, the volumes on SPY in 2009 are dramatically higher -- almost a factor of 6.    The 30 day average volume numbers are heavily massaged to get them to fit on the same graph and the first 30 days is not fully averaged due to my laziness.     Click to expand.

There were a couple of things that surprised me in this graph. The 2009 recovery, while steeper than the 2003 event, has settled into a very similar path now.   The capitulation in March 2009 was more severe (with good cause) than the 2003 market--people were incredibly negative.   The shape of the relative volume curves are very similar too, with high volumes as the recovery began, and then dropping off fairly sharply as prices rose.

  If we move into a trading range, then we can reasonably expect relative volumes to increase.    If the 2009/2010 recovery matches the 2003/2004 recovery we will have another 4 months on the trend line.  I'd be surprised if it lasts that long before we go into a trading range.