SURVIVING THE GAME
OCTOBER 15, 2008
2008 - 6

Execute new trade now. Sell 15 DIA Nov 92 calls and 15 DIA Nov 92 puts. Combined value of $11.45 per unit. This is called a straddle. DIA is the Diamonds Trust traded on the AMEX. What is happening is that I am neutral on the Dow for the next 5 weeks and I do not expect the volatility (VIX) to increase much from these levels. The VIX is currently at 59. This is based on a $250,000 total portfolio. 15 straddles receives a total premium of $17,175.00 minus commission. The position is this. You are creating a range on the DIA with 92 as the middle. The DIA tracks the DOW 30 stocks almost exactly. The range is from 80.55 on the bottom to 103.45 at the top. This translates to approx 8055 to 10345 on the Dow Jones Industrial Average. I believe we will stay within that range for the next 5 weeks and that volatility will fall. The risk is that it moves significantly outside this range and/or volatility expands significantly from this level. The exit points are if we hit 7750 on the downside or 10650 on the upside. At that time, liquidate both positions. This puts the potential risk at approx $6000 ( 2.4 % of model portfolio ) at this time. The risk will diminish with the passing of time and/or a drop in volatility. There will be several updates on this position as time passes because there are several add-on trades that may become available to limit risk.

I will post another letter explaining this trade and options in general in the next few days.

Options Guy
Editor
Surviving The Game

optionsguy@shaw.ca