XLY dances – option trade analysis

Having thrills and kicks in the markets is what I should avoid. And yet, I put on market timed trades. A good thing: I only do this in my play money portfolio. My core portfolio is boring as hell, like it should be.

In January/February, I had some fun with the XLY tracker. And it ain’t over yet

Early January, I was maybe a little too much into put writing. On one day, I wrote 3 puts. I have learned a lot from this.

shoppingThe reason I picked XLY: It contains a lot of stock I have a good feeling about. I would not mind owning them. This is a prerequisite for my put writing. The tracker follows an index of consumer discretionary companies like Mc Donald’s, Walt Disney, Home Depot, Amazon, Starbux, Nike.

(With hindsight, next time I go for XLP: this has more producers of consumer goods and looks to be more stable.)

The trade history

Early January I started out with writing a first put on XLY with a strike of 69.  This was a high probability  trade with only about 10 delta at the time of write. What does this mean? Delta tells you a lot of things. One of those is to give an approximation of the probability of success. It is not a guarantee… It is an indication.

XLY high probability trade

We all know what happened in January. By Jan 20, XLY reached the strike price. The Value of the options was now so much more than the initial credit I received for it. No profit for me. If XLY would go through the strike and stay there by Feb 19, then I would need to take action.

The market recovered and by Feb 1st, the option has lost a lot of its value: the power of time decay. One of my rules is to manage options at 50pct of max profit. This means I mechanically close the position at that time. This way, I secure my profit, I take risk of the table and can put my money to work in another trade.

The profit on this trade was maybe small, only 19 USD. I made this 19 USD for holding the option during 1 month. The quarterly dividend of this tracker is on average for 2015 was 32,15 USD for 100 units. Net, this means about 20,15 USD for me. This is what I find cool… I almost got the quarterly dividend for not holding the stock.

Only 2 days later, I decided to write another put. My longer term view on the tracker did not change: I would not mind owning it in my play money portfolio. I wrote a new put, now with a strike of 63. This is again a high probability trade with approximately 10 delta.

One of the things I am not so good at: Market awareness… On Friday, there were the non farm pay rolls… They were not in line with the markets expectations, as the stock is at the time of writing around 70. Also, Amazon is beaten down a lot, and this is a the biggest holding in this tracker…

What did I learn?

Managing positions at 50 pct max profit is a good thing. My initial position with a strike of 69 is closed and replaced with a strike of 63.  I now am still exposed to the tracker, and this time with an approx 10 pct lower strike price. This clearly improves my probability of profit and in case of assignment, I need to pay 600 USD less for the tracker.

I am curious to see what happens between now and March 18.

Note: A quick review today: XLY is back to 72. Time decay can now do the rest!

This trade overview is published to keep track of my own progress. It is not intended as investment advice for the readers of this blog. Before making a trade, you need to do your own research and you need to understand the risk of the trade.
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4 thoughts on “XLY dances – option trade analysis

  1. “The profit on this trade was maybe small, only 19 USD. I made this 19 USD for holding the option during 1 month. The quarterly dividend of this tracker is on average for 2015 was 32,15 USD for 100 units. Net, this means about 20,15 USD for me. This is what I find cool… I almost got the quarterly dividend for not holding the stock.”

    I dont get it. Maybe my english isn´t good enough. Do you mean you receaved the 20 USD for the option, but you don’t receaved the dividend? Yes, that is what you mean, isnt it?

    thanks for sharing,

    best regards.

    Like

    1. What happened: I do not own the stock, so I do not get the dividend. I did sell a put option an made 19 USD in doing so. This means that I receive almost the dividend but without having to buy the underlying.

      Like

  2. Brexit is the big talks right now. If they do exit the EU, it might set precedence for other country to follow so they can erase their debts. We’ll see how this whole thing will unfold but more turbulence coming from Europe.

    Like

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