Buy-writes on SPY quarterly options --ROQ series and XLK

Update --SPY/ ROQ buy-write: SPY upticked to above 92 after I took this position and the options were assigned at expiration. I'm looking for the next quarterly option opportunity in September.


Back in the market today. Definitely some downside risk, but we are off the recent highs enough I felt like I should be getting back in. By accident on Fidelity's option chains I noticed a set of options expiring at the end of June, not the usual expiration date. It turns out these are CBOE quarterly options with the end of March, June, September, December expiration. Other than the spreads being a little wider than regular SPY options, everything else looks pretty equivalent. The premium on SPY 90s was about 1.05 (~1%) for options that have 7 calendar days to run--compared to July 90s with maybe 2.2 for options that have 25 days to run--not a tough decision to make. The spread on the options was wider, maybe .05, but I was able to almost spit the bid-ask with a buy-write debit order.


Debit buy-writes are executed by humans, so the execution time is underwhelming, but if the market is not too volatile I use them because you can get around the retail restrictions on option pricing (.05 cent increments above a certain level) and you don't have to stress trying to do two sequential orders. Overall Debit was 88.30, SPY at 89.35, SPY 90 Call ROQFL at 1.05


My June XLK options were assigned this last weekend at 18--fine by me. XLK obliged by dropping to around 17.5 this week so I jumped back in. The XLK buy-write was a $17.29 debit order--which also was within a penny of splitting the bid-ask. It took about 20 minutes to fill the order, so I don't think I left much on the table. Bought XLK at $17.55 Sold to open XLKGR July 18 at $0.27.

The Weekly Friday Swoon of VIX

I'm watching the traditional drop of the VIX on Fridays. SPX Options prices are dropping as the time time decay value of the weekend is being incorporated--this is reflected as a drop in their IV, even though it is really a time effect.

As is typical the VIX call prices are not dropping--perhaps they are tied to the VIX futures which I'm guessing don't care which day of the week it is. As a result the VIX option IV values jump up across the board--no combination/spread opportunities present themselves.

Assuming nothing much happens over the weekend then Monday the VIX will bounce up, and the absolute value of the VIX options will stay about the same--and their IV will drop down again. No opportunity to buy cheap options on Friday and sell them dear on Monday. Even though VXX is designed to track the VIX, it will have none of this nonsense and doesn't follow the weekend wiggle.

It strikes me that in this scenario the VIX is not representing volatility-it is exhibiting some 2nd order effects of SPX options trading--namely that they don't trade on the weekends/holidays. So two days of the week -- Friday and Monday the VIX is being jerked around an artifact.

For the purposes of analysing a potential pseudo buy-write of VXX and Deep ITM VIX calls then it seems like I would be better off looking at the ratio of the next to expire 10 VIX call to the VXX. Since the bid-ask spread is always wide on these, splitting the difference seems reasonable. The value for today, around 2:30 EDT was around .415 for this ratio, while the VIX/VXX ratio has dropped below .37 (it was as high as .415 early this week).

June 09 SPY dividend capture -- the aftermath...

All of my SPY calls were called last night from my trades two days ago I'm left with my option premium (0.33) as the results of my efforts. .33/90.67 = 0.36% for two days of investment and pretty low risk--not bad... If only SPY dividends were more often than 4 times a year! A nice feature of this approach is the addition of the dividend to lower the break-even point in the negative scenarios. If the market drops such that the equity price drops below the stike price of the short call, then you have the dividend value that is captured to lower your break even point.