Put-selling in XLE

It's probably late for this, but the speculation in BP, RIG (TransOcean Inc), may have driven up options prices on XLE, the Energy Select Sector SPDR. (In fact, late May or early June, when it was at a low of $50 or $51, would probably have been better.) Anyhoo,

With XLE at 55.61 (Friday close), selling a near-the money 55 put and buying a protective 54 brings the following premium:

Jul'10 (4 wks) $34 - 6 comm. = $28
Sep'10 (12 wk) $46 - 6 comm. = $40
Dec'10 (26 wk) $37 - 6 comm. = $31
there's no 54 strike in Jan'11 or Jan'12, so a -55/+50 spread brings:
Jan'11 (31 wk) $179 - 6 comm. = $173 = 34%
Jan'12 (83 wk) $212 - 6 comm. = $206 = 41%

Why not just sell puts directly on BP where you can get a 50% premium?

Simple: single-stock risk. BP could go to $0; XLE is extremely unlikely to. This also implies that rolling for profit is less insane in an index ETF like XLE than it is in a single stock like BP.

Rolling for profit means if XLE goes to 50, you put in an unbalanced butterfly order like:

Buy (back) 1 XLE Jan'12 55 Put
Sell -3 XLE Jan'12 50 Put
Buy 2 XLE Jan'12 45 Put

for maybe $150 net premium.

Before:
1 x -55/+50 put spread; collect $200 premium, net $300 at risk.

After:
2 x -50/+45 put spread; collect $350 premium, net $650 at risk.

If XLE goes to 45, you put in an unbalanced butterfly order like:

Buy (back) 2 XLE Jan'12 50 Put
Sell -5 XLE Jan'12 45 Put
Buy 3 XLE Jan'12 40 Put

for maybe $80 net premium.

Before:
2 x -50/+45 put spread; collect $350 premium, net $650 at risk.

After:
3 x -45/+40 put spread; collect $430 premium, net $1,070 at risk.

And so on. Eventually either XLE recovers and you can close the spreads and keep most of the premium, or you run out of margin and have to start taking losses. But at this rate, XLE is down 30% and you only have a margin requirement of $1,070 in a cash account or maybe half that in a margin account. Note, though, that every time, you are taking on another $500 spread, and collecting less and less premium against it. If XLE went all the way to 10, you might have 12 spreads and $6,000 risk minus maybe $1,000 or so premium.