Today was not a Positive

Today's action could in fact be called negative. Fortunately, we did not buy LVS and MGM (neither stock showed any real signs of breaking through resistance this morning). We also kept the puts we own in MGM and they came on strongly at the close. We are still down slightly on them, but we may just turn out to be right.

Our covered write on the CME is doing well so far. The stock finished at $306.10, which is exactly one point below where it was when we sold the calls against it. The calls meanwhile closed at $10.40, which is a profit of $2.40 a contract. So how can the calls have improved in price more than the stock has dropped in price?

Theta (time decay) has helped, but that is not the full answer. The Theta on these options is now only 0.28, which means that in three days the option should have declined by about $0.84 due to time decay. So what explains the rest of the drop? I think the implied volatility of the stock dropped over the past couple of days, and this has helped us out. However, if the CME continues to drop, the implied volatility will rise again, so we will need to stay alert here. A large drop would force us to roll our options down, an action which would not really bother us any as we can sell plenty of premium right now.

We did buy Western Union today (at $19.99), so we have a small loss to show on this stock right now (it closed at $19.59).