Well, I was clearly wrong about people not being in panicky mood. Around 10:30 EST the market decided to take another leg down and the VIX did spike up quite a bit. Later in the day the market rallied back to around the point I created this position. I bailed out of my position less than an hour after I created it, before the leg down, because I didn’t like the way the market was acting. Took a net profit of 0.26 per share and was glad to have it when the market tanked a few minutes later.
This morning’s job report, while worse than predicted, was hardly evidence for Armageddon so I think the early market blow off is probably most of the action for the day. The relatively small blip in VIX confirms that people are not in a panicky mood–besides, who wants to panic on an August Friday?
I like creating covered call positions when the underlying is right at the strike price. The ATM calls have their maximum premium at that point, an underlying move in either direction decreases the premium. I bought SPY at 112.01 and sold 112 strike calls (weekly options expiring today) at 0.50. Break even is 111.51, and the best case profit is 0.49 (.43%).
The gamma certainly is high on expiration day. SPY is now at 112.45 and the 112 option premium is down to 0.20.