The JC Penney Trade - part 1

JCP has been hit by a lot of bad news. I will employ a medium term trade to generate at least 5% a month for 3-4 months. The trade is based on the premise that JCP will not go bankrupt in 3-4 months and there is an opportunity to generate money due to the high volatility on JCP options (around 100 for bi-weekly ones, and 60-70 on weekly ones).

I will document the trade here. With JCP at $8.23, I have started by selling 2 cash secured puts at $7.50 strike and 1 cash secured put at $7.00. Both expire on 11/22/13. This is a small trade which require $2200 of capital, which will be used to test the strategy. If it goes well for one month, I will increase capital to $10,000 or more.

The exit strategy will be to unwind the trades as soon as there is a doomsday news on JCP, which is low probability but can nonetheless occur.

Date: 11/8/13
Cash secured: $2200
Puts sold: $98
$7.5 strike, 11/23 expiry - 2 @ $0.37
$7 strike, 11/23 expiry    - 1 @ $0.24

Put selling on SVXY

Seeing that XIV and SVXY have a long term positive bias, I have decided to sell puts on SVXY as well. There are a lot of swings on it, so for this trade, i will relax Teddi's conditions on closing as it is riskier and needs larger swings.... doing ok till now - need to go into the 'bad' territories to see if this really works...

	Trade		Under.	Value	Expiry		Contracts	Strike	Price	Comm	Cash
7/23/2013
7/24/2013	1	Sold	SVXY	$102	08/17/13	Put	1	$90	$2.01	$11.0	$190.00
8/2/2013	-1	Brought	SVXY	$113	08/17/13	Put	-1	$90	$0.55	$15.0	($70.00)
	2	Sold	SVXY	$113	08/17/13	Put	1	$102	$1.50		$150.00

Rules employed for put selling

Following are the rules that I will apply:

OPENING (mostly from Teddi but modified a bit)

• Take solid stocks - Teddi says don't use stocks worth over $120. I am using IBM though
• Find out stocks which crossed their lower bollinger bands 
• Confirm with the K/D indicator that they are firmly oversold
• Check if MACD shows positive momentum - this one seems less useful
• Check out flattening of 10 day EMA - also it should be lower than 20 day SMA and 30 day SMA both

CLOSING (all from Teddi) - http://www.fullyinformed.com/

• Put offer to buy back the naked put at a 75% profit if it was close to ITM, 80% if it was OTM. This offer should hold till 2 weeks before expiration. Afterwards, keep reducing the order, till you reach the expiry date. Lower by 10% each day.
• If trade turns against you, close at 20% loss for ITM, 25% loss for OTM
• If you are in profit zone, and trade turns against you, close immediately 

Put selling

I am following Teddi's put selling strategies (http://www.fullyinformed.com/). I am quite in sync with the kind of trades she suggests and will be replicating them here for my own records. These are my trades till now - small earnings but confidence builders

	Trade		Under.	Value	Expiry		Contracts	Strike	Price	Comm	Cash
7/9/2013
7/10/2013	1	Sold	IBM	$193.00	08/02/13	Put	1	185	$2.17	$11.00	$206.00
7/18/2013	-1	Brought	IBM	$198.00	08/02/13	Put	-1	185	$0.18	$11.00	($29.00)
7/18/2013	2	Sold	INTC	$23.15	08/17/13	Put	9	22	$0.24	$9.85	$206.15
8/7/2013	-2	Brought	INTC	$22.70	08/17/13	Put	-9	22	$0.08	$9.85	($81.85)
8/7/2013	3	Sold	IBM	$188.45	09/06/13	Put	1	185	$2.06	$9.85	$196.15

Election day analysis

Below is how the S&P500 reacts to the elction day over the last three elections. The 2 day before election day is at "1" and then the movement is indexed to it. e.g. if election is on 11/7/2000, then day one is the closing price of 11/6/2000.

The day before election is always a very quite one - need to remember - i.e. from 11/2/2012 to 11/5/2012 the market change is small - ths has been true for the past three ones

The day of the election (before the election) i.e. 11/5/2012 to 11/6/2012, there is some change  -2% in 2000, 1% in 2004 and -4% in 2008, looks like 1.5% in 2012 (day not closed yet)

Post election, there is more movement, i.e. movement from 11/6/2012 to 11/7/2012. -2% in 2000, 1.5% in 2004, -5% in 2008 and we dont know yet for 2012

Thus, I will close my position today as there may be a major movement tomorrow.

Have to start earlier Friday

Sustained big losses today - $1200. Should have only lost $400-500 but made a few mistakes...

Mistake 1: I waited till the later part of the day to close out my old positions and open new ones. Have to start early when there is more chances to fill out on orders

Mistake 2: Opened orders on new positions before closing old ones. The market moved in the wrong direction in between and exacerbated the losses. Need to close all old positions before opening new ones

Recommendations and Performance

On a great suggestion from a friend, I will be aggregating all my recommendations and their performance till now. Below excel shows that: