Joined: 28 Dec 2005
|Posted: Mon Jul 02, 2012 11:39 pm Post subject: V-Shaped Market - 2012
|Dave, after the big short-covering rally into the end of the quarter Fri, the puts are much cheaper. SPY Oct 120 puts are a little below 1.70. So, if you buy five contracts at 1.70, it's $850. If SPY falls to 100 in Oct (from 136 Fri), they'll be worth at least $10,000 (i.e. if the S&P 500 falls to the first target of 1,000).
The SPY Oct 110 puts are 0.80 and the Oct 100 puts are about 0.45. I think, the Oct 120 puts at 1.70, or slightly lower if the market rises a little Mon, is best.
Also, I may add, the market may be in a volatile uptrend for a few weeks, because investor sentiment is negative, which means many investors are betting the market will fall. So, buying into the market can trigger a short-covering rally, like on Fri. Nonetheless, at some point the market will fall sharply and quickly, to a level much lower than people believe.
So, even if you buy the puts at 1.70 Mon and the market rises or stays high in a volatile trading range for a few weeks or a month or two, those puts will be worth a lot more in Sep or Oct, e.g. at least 20.00, if the S&P 500 falls to 1,000 in Oct.
Art, thought it over in 3 min lets set it up and go for it , you inform me as to what to do at all stages and I WILL DO IT!! if you want me to get started on these I will intermediately!!
I dont play options and believe I can do it alone but but would prefer you to talk me thru it so there is no mistakes.
The SPY Oct 110 puts are selling below 1.30. If the S&P 500 falls from 1,300 to 800 in Oct, those puts will rise to 30.00 (if it falls to 800 before Oct, they'll be worth even more).
We can invest $1,000 and sell half if the S&P 500 falls to 1,000 for $8,000. If it falls to 900, we'll sell half of the remaining puts for $6,000, and if it falls to 800, we'll sell the rest for $8,000.
We'll use that cash to buy Jan to Mar calls on SPY KBH UNG and TBF. Most of these calls will have bigger percentage moves than SPY options (i.e. more than 30 times return). So, we can turn $8,000 into $240,000, $14,000 into over $400,000, or $22,000 into over $600,000 (if all the puts were first sold).
So, if there's a substantial V-shape, we'll turn $1,000 into $200,000 to $600,000 by Mar.