Got a Bit Nervous on my XLF Puts

About two weeks I go I wrote about selling some XLF Puts. This morning I started getting really nervous about the state of the economy in general. Maybe I have been reading too much of Barry over at The Big Picture, but the more I think about it I might want to be learning basic skills for survival in a post-apocalyptic world. What these skills might be, I have no idea. JUST JOKING.

In all seriousness, I have been getting worried about the state of the US economy (finally). I sold a call this morning, and then I went to look at my short XLF puts. On August 23rd I had done the following:

Sell 1 September XLF 21 put at $1.12
Sell 1 September XLF 20 put at $0.72

Today I bought the 21 put back at $0.87. I will leave the 20 put out there, but I might cover it if I start to get nervous again.

You Don't See This Everyday

The S&P opened today, plunged 15 points, and rebounded to about flat. The September 1300 calls, 60 points out of the money, expiring in 1 week, are up $1.

I could understand puts going through the roof. Lehman is screwed, Fannie and Freddie are done, people like this Swedish guy are calling for a depression. Not a recession, but a DEPRESSION. 1929 style. But calls?

I sold one September ES Mini 1300 call at $3.50. It is now bid at $3.60.

Sold a Covered Call on RWR

Three years ago, I was bearish on REITs and started selling uncovered calls. As you might expect, I did not do so well. I wish I had stuck it out - there would have been a nice payoff.

After an optimistic round of guests on Bloomberg's morning call, the drop in oil today, and the rally we saw last week, I started thinking that everything might not be as bad as it seems. Unleveraged RIETs owning commercial property as opposed to subprime residential will probably do okay, and the hefty dividend (currently around 5%) will probably carry you through. The other thing which I have not heard mentioned as much is that, if inflation is a big concern, REITs holding physical property might not be such a bad play after all.

With this logic I bought 100 shares of RWR at $69.51 and sold the September 71 calls at $1.00. If the stock is trading much lower at expiration, I will probably roll down to the 70 calls.

At least Barron's agrees with me.

Short Some XLF Puts

A few days ago I went short some September XLF (financial services etf) puts. Though I am losing money on the trade, I like it now more than ever given the selloff on Monday. I am currently short the September 20 and 21 puts with no hedge. Unless they expire worthless, I plan on rolling them out (and possibly down) to October on expiration.

One reason I like trading puts this way is that now, for example, I could buy the 20's back at $0.93 and sell out the October 19's at $0.98. Not much of a credit, but I could lower my strike price by 5% if I wanted to. I plan on waiting until expiration because I will probably be able to do it for more of a credit, or the puts will be expiring worthless. The only risk is that XLF will tank and there will not be any premium in the puts. That is a significant risk, but it is already trading 44% off it's high of $36 from October.