Bulls vs Bears Championship 2009

Sold my put option this morning for a nice profit. Ended up making a few thousand bucks from this put. However I’m still holding FAZ call option (of course lost its value), which means I am now officially going bear again.

Did I make a bad move? Very possible. The bulls are strong. Looking at the daily swing, I almost think the institutional investors are slowly buying the stocks everytime the prices dip intra-day.

But I sold my bull position for the following reason.

1) Realized how fast FAZ straddle can lose its value because of ETF time decay compounded by option time decay.

2) Bulls are getting tired. Bears are slowly getting back into the field.

Today’s FAZ option performance shows it. If you see below, you’ll notice that even though the bulls rallied and FAZ lost more value than yesterday, the call option (bear position) only lost 10 cents in value. This means that many believe the FAZ call option is now more attractive.

FAZ Option Chain

3) More bears than bulls.

Look at the “open interest” section below. This shows the number of contracts people are holding for each contract. You will see that there are more than double the amount of call position held than the put position, which indicates that more people believe the market will be bear soon.

FAZ Option Chain2

The bears are waiting to jump on the market with no mercy as usual. But this time the bulls are strong. Soon or later, bulls will win the battle and convert the bears into more bulls, OR the bears will once again grab their glory down to S&P 600s. Time will tell.

For now I’m holding my small bear position with 70% cash…