SURVIVING THE GAME

MAY 4, 2009

2009 - 28

HOW TO BE WRONG AND STILL COME OUT AHEAD !!!

The beauty of options is that you can be wrong...dead wrong and still come out smelling like roses. I have to admit, I sure called it wrong on this rally. I almost missed the whole thing except for my uraniums and SU position. The beauty is, I still made money being wrong.

I closed some positions this morning after the housing numbers so now I can fill you in on the trades.

On Mar. 16th I sold the MAY $75 straddle on the SPY for $980 each. On Mar 25th as we rallied I bought back the $75 calls for $840 each. I then sold the $82 straddle for $960 and sold some $89 calls for $195 each to balance the short $75 puts. So I had a short straddle at $82 and a short strangle at $75 and $89. Today as we rallied I bought them all back. I paid $10 for the $75 puts, $35 for the $82 puts, $710 for the $82 calls and $185 for the $89 calls. All told I sold the set of options for $2135 and bought them back for $1780, making $355 per option or $8875 for the portfolio. Not bad considering I was dead wrong.

On Apr 23rd I sold the SPY June $84 straddle for $955. Bought it back today for $920 even though we have rallied 50 points on the S&P or $5.00 on SPY. How is this possible? Two reasons. First, time has gone by, 11 days to be exact. That erodes the value of the options. Second, volatility has fallen from about 43% to 35%. That also erodes the value of the options. So, even though I was wrong again...I still made money, not much but a total of $875 for portfolio.

On Apr 6th I sold the Crude Oil June $52 straddle for $8900. I bought it back on Apr 23rd for $6650 and sold the June $50 straddle for $6000. Today I bought back the $50 straddle for $5100. Total is net gain of $3150 per straddle x 5 straddles is $15750 profit in one month !!!

OPEN POSITIONS:

Still short the July $52 straddle. Sold at $8900 each. Closed today at $8800.

Stil lhold the long SU/short Jan $20 call position. SU closed at $28.36 and option closed at $960. Open profit of $5060 on that position.

Still have USO July and Jan 2010 option positions. Hold

Uraniums.....up 72.51% on basket since March 16th. What can I say. Preparing to purchase second $16000 worth if we get to 100% gain. Hold.

I can only imagine all of you holding the uraniums are over the moon happy. I am happy for you as well. I hope they hold and don't give back these great gains of the last 6 weeks.

SUMMARY:

To sum it up..I blew it. I completely missed this rally. The upside is that on March 10th, the beginning of the rally I was up 6% for the year. Today after closing the SPY and Crude positions I am up 20.5% for 2009 and up 43% since October last year. I cannot complain. This shows how powerful options can be. Able to make money even being completely wrong on the market direction.

This rally still creeps me out but I am obviously wrong. Still waiting for a big pullback to get long. I will be selling more straddles on SPY soon.

I will keep you posted of any new trades as they come along.

Options Guy
optionsguy@shaw.ca