It is the final options expiration week for 2011 and the markets look spooked, still. A Christmas rally does not look like it is in the works, at least, not this week anyways. The US markets are showing some negative signals and it's best we take advantage of the higher prices before the selling continues.
The S&P 500 and Dow Jones broke below the 200-day moving average today. Both charts also show a negative DMI and MACD forming. These signals often predict a short-term market sell-off, or in the worst case (for traders), a lack of a rally.
Netflix [NFLX:NSD] has been a weekly candidate for options writing. A potentially volatile stock which lacks the massive volatility needed. The shares have been range-bound for quite some time, and with the market most likely getting ready to fall a little further, take advantage of the December 72.50 call. After a sudden spike in a few minutes on Wednesday, the call options have added extra premium for us writers to hope and pray. The shares are trading at $71.00 right now and the calls are $1.11. That is a return against market value of 1.56 per cent and upwards protection 3.68 per cent.
Las Vegas Sands [LVS:NYSE] has shown some weakness over the past week. The shares have not broken below its support in the $40 range, but I do not expect the shares to rally against the market's trend either. Consider writing some out of the money call options, with the December 42 calls appearing to be the most attractive. The shares are trading at $41.00 and the calls are bidding $0.26 per contract. That is a return against market value of 0.63 per cent and upside protection of 3.07 per cent. Another added bonus could be if the shares do rise tomorrow, consider writing a put as well for an extra return.
There weren't too many attractive trades this week to implement on Wednesday. It looks like many of the call options have lost a lot of value due to investor sentiment. The shares above are the usual ones I trade, so there's nothing special here.
If you want to take on less risk, considering writing the McDonald's [MCD:NYSE] 97.50 call and put for a short straddle trade. Premiums would net you about $1.08 on a low-volatile stock. The shares are at $97.43. Remember to close out the option on Friday by the way.
Other considerations would be an IBM strangle at 185 and 190. You'll earn about $1.20 here.
The table below breaks down the real-life returns and margin required. Remember that returns below assume full expiration on all options, including straddled trades. Consider your investment needs and objectives before implementing any uncovered option trades.
| Company Name | Premium (per pair) | Approx. margin (per pair) | Return Against MV | Real Return |
| Netflix | $111 | $2,175 | 1.56% | 5.10% |
| Las Vegas Sands | $26 | $1,260 | 0.63% | 2.06% |
| McDonald's | $108 | $2,925 | 1.10% | 3.69% |
| IBM | $120 | $5,700 | 0.64% | 2.10% |
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