Quote:
Originally Posted by ReplayRandall
Then you'd better "Heavy-up" on your options, the bond market is about to go south thanks to Fed's bond dump off it's balance sheets, stocks will fall right behind......Sign, sign, everywhere a sign.
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The swiss central bank holds $129 billion in U.S. equities.
These big players will probably come in and start buying at the first sign of selling in order to prevent a loss.
But if they don't then it might be a good time for small players to sell while the market is still near all-time highs? Or at least insure your portfolios.
Remember -- sell in May and then go away. That is a Wall Street maxim for a reason.
I bought 500 shares of the VIXY ETF for $11.79 and put in an order to sell 5 deep-in-the-money VIXY September 15 call option contracts with a strike price of $5 for $8.40. My order was triggered today when VIXY hit $13.41 at the close.
The cost of the VIXY was $11.79 x 500 shares = $5,895
I collected 5 * $8.40 = $4,200 on the sale of the calls.
My net cost was 5895-4200=$1,695.
The trade can lock in a 140% annualized gain after commissions of about $0.03 per share as long as the VIXY stays above $5 by Sept 15. It can rise to infinity and the trade will still make 140% annualized. It can fall as low as $3.39 before the investment starts losing money.
If VIXY falls to $5 at the September 15 expiration date the options will expire worthless and I will keep the $4,200 for which I sold them. I would lose $6.79 * 500 shares = $3,395. The net profit for the 4 months would be 4200-3395= $805 on a $1,695 investment or 47% -- which is about 144% annualized (not including commissions).
I probably could have rolled the dice and not bought covered calls and just played the VIXY long which would be a pretty safe bet since I bought it when the VIX was near an all-time low, but I like to limit my downside risk while having a very high probability of more than doubling my investment on an annualized basis.
If the VIXY shares get called away there will still be a nice profit.
If I had been paying attention today I would have raised my asking price to $9 or maybe even $10 or perhaps even looked at other stike prices. It's hard to work a day job and trade effectively.