FMOC TRADE Method To My Madness. Overview Two options strategies for trading the FMOC on 08/12/09 First, a DITM (deep in the money) plan Second, an OTM.

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Presentation transcript:

FMOC TRADE Method To My Madness

Overview Two options strategies for trading the FMOC on 08/12/09 First, a DITM (deep in the money) plan Second, an OTM (out of the money) plan

Deciding What To Buy I chose to trade the SPY for this exercise. The SPY closely tracks the S&P 500. Next the projected price movement must be determined. I decided to look at the previous FMOC meeting results for this year. Lastly the strike price for the option you are considering must be selected.

How Much Will It Move? 06/24/09 08/12/09 04/29/09 03/18/09 FMOC meeting dates this year

How Much Did It Move after the January FMOC meeting? FMOC on 01/28/09 (not shown) SPY opened on On 01/28/09 the high was Total difference 3.83

How Much Did It Move After March Meeting? 06/24/09 08/12/09 03/18/09 On 03/17/09 the Spy opened At On 03/18/09 the Spy made A high of Total between the day before FMOC open and announcement Day high was 4.83

How Much Did It Move After April Meeting? 04/29/09 On the open the day before The April meeting Spy opened At On announcement day 04/29/09 The high was The total difference was 3.39

How Much Did It Move After June Meeting? 06/24/09 June was a little different The open on 06/23/09 was The high on 06/29 was For a difference of only 1.61 On the next day the high Was for total of 2.70 But market was trending down

So How Much Do We Expect SPY To Move The average movement from the open on the day before FMOC meeting to the high price the day of the meeting is 3.42 Current media chatter and economic data point to Fed stating “recovery is near” SPY has been in an up trend 2.50 seems like safe bet 3.50 little more risky

DITM Option For the DITM option we found the dollar strike has plenty of open interest and a delta over 90. So we bought 10 contracts at each on 08/11/09 (the day before announcement) We expect we should have enough movement to sell at dollars per share

OTM Option For the OTM option we bought the 104 strike. The stock price was If price moves 3.50 then it will be in the money and price will be much higher. This is more risky but much cheaper to enter into. We bought 10, 104 strike calls for.34 each. Using the options price calculator we expect to sell for 1.34e.

So What Happened The open price on the day before announcement was The high the next day was only for a total of only a meager 1.02 The next day did not help much either. The high was only or 1.07 It is possible that there was just not enough conviction to send the price above resistance

Current Totals Yesterday SPY closed at The DITM has a bid of 10.95, ask of 11.25, with a high of If get out now, we will close with a profit of around.50 per share or dollars The OTM has a bid of.17, ask of.20, with a high of about.46. If we close now we will take a loss of around.16 per share or

So, Ride It, Roll It, or Close It?