Selling Puts after Brexit

The S&P 500 (SPX) is down over five percent in the past two trading days. However, trading today closed at 2000.54, a key psychological support level. It is difficult to predict the impact of Brexit both short- and long-term. However, the U.S. economy is in fairly good shape with seemingly low unemployment, strong consumer spending and sentiment, and housing demand remaining upbeat. Investors will be watching carefully for the effects of Brexit as new economic data is released. What is likely, however, is that volatility will continue in the financial markets over the course of the next few weeks or months. This presents an exceptional opportunity for premium sellers.

Chart_062716_SPX

Today, I took advantage of the high implied volatility in /ES futures options by selling some deep out-of-the-money puts.

2016-06-27 17.18.09

Chart_062716_ES

upload_6_27_2016_at_3_22_08_PM/ES Sep 1275 Put
Trade Details:

SELL 2 /ES Sep 16 1275 Put @ 2.00

Credit: 2.00 ($100.00 per contract)
Max Risk: Unlimited (Breakeven Price: 1273.00)
/ES Current Price: 1986.00
Margin Required: $508.00
Days to Expiration: 81
Probability of Profit: 97.83%
IV Percentile: 84.52%

If the market continues to drop, I will gradually add to this position. On Friday, after the initial drop, I also sold three /ES Aug (Wk3) 1375 puts for 1.20.