Because I'm bored, I thought I'd go through a way to choose an option write on the SP 500 via SPY(AMEX)
As the december expiry is upon us, I am looking for a new option write.
With Xmas and everything, there are less than 20 trading days till the Jan expiry, so that is the analysis period.
In the last 20 days, the index has risen 12% from a major low.
Since 1990 the index has only ever exceeded a 12% move up in 20 trading days rise on 5 occasions. On each occasion it has been from a major low, never from a high or intermediate move.
Since 1980 the index has only ever exceeded a 12% move up in 20 days, anytime ending in January, once. That was in 1988 after the crash of Oct 1987.
Since 1990 there has never been a 12% move up in 20 trading days, after the index has already moved up 12% or more in the preceeding 20 trading days.
Implied volatility at OTM call strikes is 35%, but that is artificially low because of the days missed due to xmas, new year etc.
SPY is currently trading at $91.10
Based on IV, 1 standard deviation higher takes us to ~$100
12% higher takes us to the ~$101 strike.
We can get $60 per contract in premium at the $101 strike
That is a return of > 4% on margin for a naked call write for the month if it expires worthless. (~50% annualized).
I think so... as part of a portfolio of writes and with a defense plan, definitely. I believe that the probability of this trade is much higher that the statistical and implied volatility numbers suggest, given the raw numbers above, perhaps 95%.