Friday Nov 30 2012 Never Sell a Quiet Market

Investing is full of adages. You know them, ‘buy the rumor, sell the news’ and ‘ buy when others are fearful, and sell when others are greedy. But I like the one in the subject line and I think today is a relatively quiet market. Volumes are low and most of the charts are relatively horizontal.

My favorite option trade is some sort of variation of a calender spread. I’ll try to buy an in the money spread that’s out a few months and with a really high spread in between in lieu of buying the underlying security. I’ll give you a real example that i have on now with GOOG.

I own a small position in GOOG, 100 shares with a basis of 684 and today GOOG is trading at about 695. Some time in the last month I bought two spreads one is a January call spread – buying the Jan 600 call for about $70 and selling the 720 for about $9. Total cost – $61 or $6,100. Right now I am up about $2200 on this spread today

I also bought the March 600 for $83 and sold the 740 for $11, total cost about $7,200. I am up $1,200 on this spread today

So the way I look at it I am essentially long 300 shares and can write short term calls against them.

Right now I am short a Dec7 695 call at $6.5, and short a Dec7 700 at $5, I am also short a Dec22 690 call at  $3.5.(took this one out when I opened the Mar spread).

Should GOOG take off from here I will have to cover the short calls I have but 700 seems to be resistance. If that is the case I can liquidate my spreads to finance the buy back. But usually the premium deteriorates so that by Thursday when the new weeklies come out I can roll them into the next week. In fact I have been doing that for some time now.

I really should only write credit spreads short term and say I will do it the next week, but it comes at a cost and, of course, I am a bit greedy . . . . . just like everyone else.