On January 9, 2009 I sold multiple XLE February 40 puts for .82 ($82) each. They expired worthless. The margin maintenance requirement was $476 per contract. The return on margin (ROM) was 17.22% (82/476) for 42 days or 149.65% annual.
I love trading oil and am close to deciding that I will trade my old favorites XLE and OIH and give my good buddy ERX a rest. The premiums in ERX have come down significantly and the bid/ask spreads haven't narrowed enough yet. In addition, XLE has a few bonus expiry periods so you can milk some additional premium out of it.
"Adjusted for Inflation, Dow's Gains Are Puny" WSJ
11 minutes ago
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2 comments:
Hey pc. I was just looking at writing some mar38 puts on xle - it seems to be pretty well entrenched in the 40-50 range so that seems pretty safe for a $1 premium.
Still waiting on a rally to buy some puts though - im pretty bare.
Can you explain to me a few more details about what you mean by 'bonus' expiry periods above. I assume you're talking about the quarterlys but i am not familiar.
Also, are there any other gotchas in the oil sector i should understand before getting into xle?
Thanks for a great idea blog.
Hi learningNewIncome - if you look at March there are 2 expiration dates. If you write XLE I'd write far out of the money. If the market tanks this gives you more downside protection. Any gains are good gains in this market. Also, short term there are demand issues, negative sentiment and contango issues. Mar 38's seem pretty safe but you never know in this market..Good luck and I hope you'll keep us posted on what's working for you.
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