- Time value of the option is deteriorating now as the option is getting closer to expiry date, so I am not able to get adequate "pop" in the option for each point decline in the S&P.
- The prevailing expectation is for a decline in stock over the immediate term, and when every one is thinking the same way it is hard to make money. I have taken the put when Wall Street was talking about recovery and the market have gone up unjustifiably. Puts were cheap based on their volatilities, no body wanted them so I bought, now they are a bit more rich.
- Shorting using options is about timing and timing does not fit in my circle of competence; general market analysis is outside my scope of strong abilities.
- Options are very tricky; your prediction can be right on the money but you still would lose money using options, there are may moving parts in your valuation.
- I need the cash to be ready to buy for my long-term positions.
June 25, 2008
Close of my Hedge
I have two updates concerning two of my positions. My put on the S&P I have decided to close my put option on SPY @ $4.35 per contract, my original cost was $3.6, a 20% gain in less than two months. The SPY was 139 when I purchased the option and 130 when I sold it, 6.5% decline. I think there is still room on the down side for the overall market but these calls are not my game and I try not to action them. I have several reasons to close the position, however none of these reasons invalidate my original rationale for buying the put, see my post here, actually my original thesis is more valid now that it has been couple of months ago. My reasons to close the position are: