ETF Covered Calls 09-11-2009

Another roller coaster week and OIH has been vacillating between $102 and $113 all week so I’m hoping to get called to cash out.   The price of oil and gas is defying the laws of gravity and I fear it is only hot air keeping OIH up right now.   We’ll see how next weeks expiry treats the investor; here is the ETF-Cashinator report and I’ve included October calls/puts too!

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6 Responses to ETF Covered Calls 09-11-2009

  1. Fletch says:

    A couple questions for you:

    1) You keep talking about how the options look terrible and indicate a lot of volitility. Yet the VIX keeps dropping and has been since last November. How are you seeing more volitility in the options than the VIX is indicating? Isn’t the VIX basically the implied volitility of the S&P 500.

    2) I’m curious on your thesis of a crash between now and November because the Fed stops buying treasuries. The Fed was only going to buy $300 billion which is a small amount in the treasury market. The last auction for 30-year notes was the strongest in years and yields are at multi-month lows. I don’t see the conection between the Fed purchases ending and a crash in equities.

  2. RichSlick says:

    The VIX, to me, is as useless as a thermometer on a hot day. If it’s hot outside you already know it, so what’s the point of the thermometer?

    To “prove” how useless the VIX is and the disparity between what the ETF-Cashinator is showing me and what the VIX is or is not doing is illustrated as follows:

    The ETF-Cashinator harnesses all the options trading for ETFs. The ETFs themselves are made of up individual stocks of some of the more “important” companies. Think of it as a thermometer with barometric pressure gauge, psychrometer, and anemometer to get a better picture of the economic “weather.” Read up on what the VIX actually is and you’ll discover it’s pretty useless most of the time like a plain old thermometer. The ETF-Cashinator is showing me detailed volatility for each and every ETF and their underlying securities – it is a MICROSCOPE with a 22″ LCD display!

    As for the Federal Reserve, you seem to be forgetting the half dozen schemes the Fed has to keep pumping money into the system. If you want to know what they are click here:
    http://www.newyorkfed.org/markets/Forms_of_Fed_Lending.pdf

    Here’s a quick summary: TAF, PDCF, TCE, TSLF, CPFF, MM, TALF.

    The question you should be asking is WHY the Fed will stop buying US Treasuries when so many problems continue to exist in commercial and residential real estate. On September 14, 2008, the Fed suspended Rule 23A to allow banks to use depositors money in tri party repos and that is supposed to expire (originally in January 2009) but now at the end of October 30 along with the Feds “buying” of Treasuries.

    Reference: http://www.federalreserve.gov/newsevents/press/monetary/20080914a.htm

    People that invest millions and billions of dollars are all aware of these rules and changes and what do you think they’re going to do when they suspect the government is going to pull the rug out from under the whole mess?

    I wish I had time to right 20 page thesis on each subject as things change but I just don’t have the spare time. As it is, I’m already behind on 2 projects I need to complete tonight!

    I hope this answers your question.

  3. RichSlick says:

    I forgot to add this little gem too:
    http://online.wsj.com/article/BT-CO-20090915-712046.html

    “The lifting of the government’s year-old guarantee, which applied only to existing investments last September, shouldn’t markedly accelerate that movement, funds officials say.

    “Nobody thinks the world is coming to an end on Sept. 19, yet we think we have to prepare for it to make sure the worst doesn’t …”

  4. Fletch says:

    Thanks for the resonse, it’s more than I was expecting. A couple of follow up questions/thoughts.

    1) If you don’t view the VIX as being relevant, which ETFs do you look at for a better gauge? You state that the ETFs contain more “important” companies, however there are a lot of ETFs that IMO hold “junk.” Then you also have leveraged, inverse, foreign equity, and commodity ETFs. It would seem looking at all of these would just cause a lot of “noise” about what’s going on.

    2) You certainly have a negative thesis on the economy/markets, and I agree with much of your concerns. However, why let a huge stock rally pass bye just focusing on what might occur at an unknown time in the future? It could be years before your concerns are realized. With all of the investment tools out there a person can make some good coin and still be fairly well protected in the event of a crash by using stop losses, options, inverse ETFs, etc.

  5. RichSlick says:

    You live and learn is pretty much all I can say; as I’ve gotten older I’ve become so much more skeptical and cautious. Have at it and good luck.

  6. RichSlick says:

    Oops, I hit return before I finished my responses:

    1. The ETF’s that matter the most to me (for the moment) XHB – Housing, SMH – Semi’s, QQQQ – Tech, XLF – Financials, OIH – Energy/Drillers, and a few others. The future economy is based on technology, energy and health care (what I personally believe).

    2. I’m negative for now until we “clean out the garbage” and then I’ll be positive. We’re not there yet.

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