Friday, November 14, 2008

IWM Straddles Report For The First Three Weeks Of November Expiration

This is a mini report on the IWM straddles/strangles, which continue to perform well. The chart below shows the ROI of strangles bought on each Monday of the current November expiration month.

Two sets of strangles were bought, one whose strike prices are 15% off the current IWM price, and a second one whose strike prices are 10% off the current price at the time.

(Please click on image to enlarge)

The table below shows the actual prices.

For other days of the week the results are in general similar. It is obviously impossible to know when the bottoms or peaks would be ahead of time, i.e, the ideal times to sell, however the key is that it was always possible to sell these strangles at a profit. The above set of points show a minimum gain of 26%. So, for example, a threshold could have been set to sell at 25% profit. Other points may be less. This is not a complete study on all days as was done last month. It is possible that other days did not perform as well.

It is clear that the biggest gains were obtained in the last 2 weeks, and the gains were smaller in the initial weeks of the expiration moth. In general, VIX was actually higher during this initial period. The chart below shows the VIX during the same period. Note that during this period the VIX oscillated between 44 and 80. Although VIX had swings of nearly 100%, the effects on premiums was not really apparent. Some charts for options during the period are also shown.

(Please click on image to enlarge)

The correlation between VIX and IWM is clearly visible, as it was stated elsewhere, in practice lately VIX measures bearishness; its value goes up when the markets goes down.

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