10/19/2007 8:54:40 PM
This month we had an 8.75% gross gain, which brings this services' net gains to $7,826 on a starting capital of $10,000, i.e. 78.26% over 10 months. An 87.89% Annualized Return! For a full break up of this performance, CLICK HERE.
This time a week ago the market had broken out into new highs and it seemed unstoppable. We had been anticipating a drop for the last few weeks but as usual the market likes to make you sweat a little and we got our drop this week. In the end our positions expired very safely and we generated a healthy 8.75% return for the month. On to the next month.
Our system remains in Sell mode, The large gap down this morning and continued fall meant that we never stood a chance to get our desired new position.
The chart above shows that we may get some support from the 1500 level although a drop to the next two levels of support at 1480 and 1460 are also quite likely in the next week. In a prior report I had said that a drop to around the 1480 region would be quite healthy in order for the market to have its traditional Christmas rally and I still stand by that.
Today's large drop creates more volatility, which means that we can still get a good premium on a far away strike. I will reassess the probabilities over the weekend and send out a new position on Sunday night, so keep an eye out for that.
Summary of Position Last Month
We entered an Oct 1355/1345 Put Option Spread on September 25 and received a premium of $35 per spread (Note, we only sold half the amount of contracts we would normally do due to taking a more conservative stand under the given market conditions). Then on October 1 we entered an Oct 1590/1600 Call Option Spread and received a premium of $70 per spread. For our portfolio, this equated to a net return of $82.90 per $1,000 of margin or 8.29% after commissions for one month (using Interactive Brokers commission rates). The CBOE settlement price for the SPX options for October was 1531.12.
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Also as a side note, I'd love to hear what sort of performance you guys are getting from this strategy. Have a great weekend and Feel free to email me at firstname.lastname@example.org.