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Daily Stock Market Equity and Options Trading Commentary

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Thursday, June 4, 2009

Playing More Conservative: 80 ETF Buy-Write Option Strategies & Ranked Spreadsheets

As posted previously in my blog, ETF's are some of the safest securities to purchase when planning on investing. An even more conservative way to buy ETF's is to write covered calls on them once purchased. Writing call options allows you to get some of your investment back immediately and gives you some downside protection, however if the stock really takes off you cap your upside.

The buy/write option strategy seems ideal when purchasing diversified ETF's. This is because diversified ETF's are less volatile than purchasing specific stocks (however leveraged ETF's are extremely volatile and as I state here I don't believe are investment vehicles).

I have put together a list of 80 ETF's (yes 80!) and calculated each of their % probability of expiring above the indicated strike, as well as the % return if they expire above the indicated strike. The list below is sorted alphabetically, and all options are for the July expiration (July 18, 2009). All strike prices are near the money unless indicated they are in the money (IN $).

Below is a list of the 80 Exchange Traded Funds. (All data priced as of pre-market Thursday June 4, 2009).

Stock Ticker Strike % Probability % Return
Consumer Discret Select Sector SPDR XLY 24 54.2 4.3 IN $
Consumer Staples Select Sector SPDR XLP 24 42.2 3
DIAMONDS Trust, Series 1 DIA 88 44.4 3.9
Direxion Daily 10 Yr Trsy Bear 3X Shares TYO 70 61.2 3.2 IN $
Direxion Daily 10 Yr Trsy Bull 3X Shares TYD 50 46.5 4.8
Direxion Daily 30 Yr Trsy Bear 3X Shares TMV 85 53.8 9.2
Direxion Daily 30 Yr Trsy Bull 3X Shares TMF 40 50 9.9
Direxion Daily Devlpd Mrkts Bear 3X Shrs DPK 30 61.1 9.7 IN $
Direxion Daily Devlpd Mrkts Bull 3X Shrs DZK 55 57.4 12 IN $
Direxion Daily Emrg Mrkts Bear 3X Shares EDZ 14 58.7 17.2
Direxion Daily Emrg Mrkts Bull 3X Shares EDC 90 53 17.7
Direxion Daily Energy Bear 3X Shares ERY 20 53.9 15
Direxion Daily Energy Bull 3X Shares ERX 35 58.1 12.7 IN $
Direxion Daily Financial Bear 3X Shares FAZ 5 56.3 20.7
Direxion Daily Financial Bull 3X Shares FAS 10 55 18
Direxion Daily Large Cap Bear 3X Shares BGZ 35 53.8 12.3
Direxion Daily Large Cap Bull 3X Shares BGU 35 58.4 9.5 IN $
Direxion Daily Mid Cap Bear 3X Shares MWN 30 51.4 12.4
Direxion Daily Mid Cap Bull 3X Shares MWJ 60 60.1 10.5 IN $
Direxion Daily Small Cap Bear 3X Shares TZA 22.5 53.2 18
Direxion Daily Small Cap Bull 3X Shares TNA 32 51.2 15.3
Direxion Daily Technology Bear 3X Shares TYP 22.5 58.1 10.8 IN $
Direxion Daily Technology Bull 3X Shares TYH 85 55.1 9.7 IN $
Energy Select Sector SPDR XLE 53 40.9 6.3
Financial Select Sector SPDR XLF 12 52.4 6.7 IN $
Industrial Select Sector SPDR XLI 23 53.2 4.3
iShares Dow Jones US Energy IYE 30 57.4 4.1 IN $
iShares Dow Jones US Real Estate IYR 35 48.5 7.4
iShares MSCI EAFE Index EFA 48 47.2 4
iShares Russell 2000 Growth Index IWO 59 42.7 5.7
iShares Russell Midcap Growth Index IWP 35 70.5 2.2 IN $
iShares Russell Midcap Index IWR 65 60 3 IN $
iShares S&P 100 Index OEF 44 46.6 3.4
iShares S&P 500 Index IVV 95 45.5 4
iShares Silver Trust SLV 15 55.9 4.9 IN $
Materials Select Sector SPDR XLB 28 43.3 2.6
MidCap SPDRs MDY 110 42.5 5.6
PowerShares QQQ QQQQ 37 44.8 4.9
Retail HOLDRs RTH 80 56.9 3.7 IN $
Short Dow30 ProShares DOG 66 46.9 4.8
Short Financials ProShares SEF 59 47.6 9
Short QQQ ProShares PSQ 55 63.5 2.8 IN $
Short Russell2000 ProShares RWM 55 56.8 4.8 IN $
Short S&P500 ProShares SH 66 46.1 4.8
SPDR Barclays Capital High Yield Bond JNK 34 54.5 1.4 IN $
SPDR DJ EURO STOXX 50 FEZ 36 44.3 4
SPDR Gold Shares GLD 96 45.4 4.7
SPDR S&P 500 SPY 95 44.5 4.3
SPDR S&P Metals & Mining XME 40 44.8 10.8
SPDR S&P Oil & Gas Equipment & Services XES 24 52.8 6
SPDR S&P Retail XRT 30 43.5 7.1
Technology Select Sector SPDR XLK 18 50.6 4.1 IN $
Ultra Basic Materials ProShares UYM 21 47.1 12.6
Ultra DJ-AIG Crude Oil ProShares UCO 12.5 49.7 12.1
Ultra Dow30 ProShares DDM 31 47.8 7
Ultra Financials ProShares UYG 4 56.5 10.9
Ultra Gold ProShares UGL 37 46.9 8.8
Ultra Industrials ProShares UXI 22.5 43.4 11.5
Ultra Oil & Gas ProShares DIG 31 48.2 10.6
Ultra QQQ ProShares QLD 40 43.1 9.7
Ultra Real Estate ProShares URE 4 56.1 13.5 IN $
Ultra Russell2000 ProShares UWM 21 49.3 10
Ultra S&P500 ProShares SSO 28 44.4 9.1
Ultra Semiconductor ProShares USD 20 46.8 11.1
Ultra Technology ProShares ROM 30 59.2 5.7 IN $
UltraShort Basic Materials ProShares SMN 17.5 54.8 11.5
UltraShort Dow30 ProShares DXD 46 53.8 7.1
UltraShort Financials ProShares SKF 44 50.7 14.7
UltraShort Industrials ProShares SIJ 40 56.1 7.8 IN $
UltraShort MidCap400 ProShares MZZ 38 50.2 10.4
UltraShort Oil & Gas ProShares DUG 18 45.9 12.7
UltraShort QQQ ProShares QID 34 45.3 11
UltraShort Real Estate ProShares SRS 20 50.5 21.5
UltraShort Russell2000 ProShares TWM 42 50.8 11.5
UltraShort S&P500 ProShares SDS 55 51.7 8.4
UltraShort Semiconductor ProShares SSG 40 44.6 15.1
UltraShort Technology ProShares REW 45 41 12.4
United States Natural Gas UNG 15 47.5 12.8
United States Oil USO 37 47.5 7
Utilities Select Sector SPDR XLV 26 52.2 2.6 IN $
Average

50.9725 8.75375


The July options expiration has 44 days left. Some people use the buy/write option strategy to write in the money covered calls and capture a 3% gain. If you write an in the money call every 2 months and happen to be called out every time, this would yield a return of 18% annually, not to mention dividends and capital gains distributions. The likelihood of continuously getting called out month after month is not too realistic, but not impossible either (and of course it depends on both the strike price and stocks volatility). For more information on options pricing, probabilities, check out my E-Book for under $4.99!

Among these ETF's are some which are very volatile such as the (TNA) and the (FAS), and some less volatile such as the (DIA) and the (SPY). As you'll see the greater the volatility of the underlying stock, the higher % return. You will also notice calls written in the money have a higher probability of expiring above the indicated strike (this should make sense).

Of these strategies I am most interested in the: (FAS), (IWJ), and (ERX). For one I am bullish on the underlying stocks (more reasons discussed on my blog), and their return % and probabilities of expiring above the indicated strike are both above the average for my analysis of these 80 ETF's.

Below is a spreadsheet I have created for 80 ETF's sorted by % return (click to enlarge).

Below is the same list but ranked in order by the current % probability they'll expire above the indicated strike price (click to enlarge).


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2 comments:

dobie said...

like the spreadsheets -- is rationale for computing the percentages in your ebook?

Marco H said...

Thanks for stopping by my blog! My E-Book simply lays out how to buy and sell calls and puts. It also defines the "Greeks" which include probability. As for return %, that is based on the difference from the strike price and the premium, minus the price paid for the stock.

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