Playing the Expiry: November 11, 2011
Don't expect a lot of activity leading up to and including November 11, where both Canadian and Americans will celebrate Remembrance Day and Veterans' Day respectively. Strangely, both Canadian and Americans markets are open on the statutory holiday, but as usual, there will be no settlement. So, with the markets having fallen more than 3 per cent today, a flat week or even a short-term rise could be in the works. Fortunately, intra-day volatility continues to exist, allowing us options writers to make a fortune.
Here are some trades to consider which were executed by me today.
Las Vegas Sands [LVS:NYSE] has found a home between $40 and $50 over the past year. The shares had reached $48.08 yesterday but have fallen with the market to just above $46. The 45 puts for this week look like a good deal. The shares have slipped below $45 many times, but have always crawled back above 45, which is an advantage if you get caught in the money on Friday. The puts are $0.40 per contract. That represents a return of 0.87 per cent return and downside protection of 3.38 per cent. The shares have already fallen 3.87 per cent today, so there is an argument that the shares won't fall another 3.38. Shares don't often fall 7.5 per cent over three days under normal circumstances.
Baidu [BIDU:NSD] has also taken a hit today and put premiums are up. Consider the 130 put for $0.60 per contract. This is only a return of 0.44 per cent, but it's a safer play, especially since the shares have fallen below a short-term support level of $140. You are protected from an additional drop of 4.85 per cent. A riskier play could be the 135 puts which are $2.03. That is a return of 1.49 per cent, but has only 2.22 per cent protection.
Netflix [NFLX:NSD] has shown an inability to remain above $90. Writing the 90 calls would earn you $1.10 at least. That is about 1.21 per cent yield against the market price. And the shares would have to rise 3.52 per cent in two days before you lose money. If you believe that the shares will remain sideways, consider writing the 85 puts as well for an additional $0.85 or so. Note that the shares have had massive volatility on Thursday and Friday in the past few weeks, so taking one side of the trade might be more wise. Over the past weeks, I had written only puts, but have seen the shares create a rounding top formation at just above $90, indicating the rally after earnings is fading.
Before I finish, I want to say one last thing. This Friday, we celebrate our soldiers that lived or died through wars and courageously fought or sacrificed with their lives so that we can live in a peaceful country. Although this world still has its woes, as represented by current military soldiers, we can not thank our brothers and sisters in arms enough.
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