207 W/e12Feb Economy Crushed, FTSE Up

That was The Week as History Showed How Grim Things Have Been

[ This from the BBC: The UK economy shrank by a record 9.9% last year as coronavirus restrictions hit output, official figures show.

The contraction in 2020 “was more than twice as much as the previous largest annual fall on record”, the Office for National Statistics (ONS) said.

However, the economy looks set to avoid a double-dip recession after growth picked up at the end of the year.

In December, the economy grew by 1.2%, after shrinking by 2.3% in November, as some restrictions eased.

GDP was first measured in the aftermath of the Second World War, and the measure has never previously dropped by more than 4.1% in a year. However, the Bank of England models GDP going back centuries, and the 2020 contraction could be the worse since 1709.]

FTSE took it on the chin and bumped up about 1% at the end of a flat week.

Thus again we are reminded of the total disconnect with stock market and real economy. There is no rational argument either way, it’s just the way things are. Although the day the US invaded Iraq the market went into a frenzy -factoring in a massive victory. That outcome has yet to have an outcome.

American politics? – I give in. You know the world has gone nuts when a member of the US public claims Trump is ‘god’s choice’. Imagine saying that about Boris! How have we come to such nonsense? Let’s be thankful we deal with reality, and numbers that actually exist. Onwards and upwards.

Webinar and Invitation To Trade

I enjoyed the presentation by https://www.alpeshpatelpresents.com

However he is in the business of selling a course with a onetime fee, which seems fair enough. Interesting that his chosen method is the typical binary buy/sell forex, indices etc. He reckoned on looking at 12-20 instruments and choosing a trade based on likely direction. In order to determine direction he has an ‘algo’ which seems to be based on chart action and several indicators. I liked his idea of a ‘volatility based stop loss’. But exit seems to be based on adding to a winning trade and running it. Our own research has shown we should add to a losing trade in most cases! Example you bought a put ratio spread  for credit  10 and now it’s 20, buy some more*. Very hard to do but who can get a trade entry at the best ever price? Do your own research!

What about pound-cost averaging? I find this to be about what suits the individual. Gut can triumph over stats. However, being very uncomfortable with a strategy does not make for good trading.

*Witnessed this in the current month -again. Entered for credit  14 at one point it traded at 40( now a credit ofto close )  Didn’t do it, I am such a rubbish trader!

Distraction Trades

So, as Vol seemed to drop out of the markets, another lean week 3 possible trade entries but with a trailing stop they would have struggled to make 100. For once the trades were in regular market hours. I stick with DAX as what suits others does not resonate with me. I hate the idea of 10 or more charts on screen

 

Trade204 In a Stagnant Market

Our  low risk trade- the Iron Butterfly. This means we buy the wings and sell the body: wing 6800 call 61,  body:( 6700call 108, 6700 put 128),  lower wing:6600 put 90. Thus we have 108+128= 236- (90+61)= 151. Which gives 77. Risk therefore 100-77=23

Here (above)  the prices – the put spread now  135-61.5= 73.5, the call spread 7-1.5=5.5. This is a loss of 2 currently. Not bad considering 

Trade205 Strangle versus ratio

Selling Vol. I was once told that in a big volatility expansion it pays to sell both sides as the contraction can often make the trade a win regardless of direction.  VIX is up from 24 to 33. So how would one do this? Sell a strangle? What if you bought lower vol and sold more and higher vol?

Compare and contrast Strangle: 1 ∑( one standard deviation) typically 0.16 delta gives us Call: 6700 @21.5 Put: 6000@44 total premium 65.5 risk at 6765.5 and 5934.5.  Now 9.5 for the call and 7.5 for the put HUGE WIN (65.5-17 )= 48.5  Close that puppy! 

Ratio that:  Puts 6200 and 6050×2 give us 78.5  and 51×2.=  23.5    Calls 6650 @ 32, 6700 @ 21.5×2 = 11  Total premium taken in 34.5. Risk at 5855 and 6795

16. 5 and 9×2 for the put ratio = debit 1.5 to close  16.5 9.5 x2 for the call ratio thus 2.5 debit to close. Total premium at entry 34.5- 4= 30.5 WIN

OK, I grudgingly admit  the strangle did better for now…..

The strangle now 7 for the calls 1.5 for the put. Thus 65.5- 8.5= 57 profit

Ratio trade:  puts = 0.5  Calls 16 -(7×2)= 2. Credit 1.5 + 34.5= 36   This is NOT over!

Trade 206 A Recent Happy Butterfly Variation

We recently used the far month’s put option as the lower leg of the put  butterfly to mitigate theta. Volatility has been smashed to bits for Feb, so we will  buy a put spread  for March 6350/6250  (111.5, 83.5). We also sell the Feb 6250 put for 21.5. Now our trade costs us 111.5-( 83.5+21.5=105  ). It’s a small debit of 6.5  It is a trade I cannot put a name to, other than a sort of calendar ratio.

Caveat -it would have been good to sell more of the Feb but as prices are grim, it’s a risk/reward not worth taking. We do now have risk at 6150, max profit 11-6.5= 93.5.

Now 4.5 for Feb 6250 put  (71 -52.5)= 18 for the March put spread. Our debit was 6.5 now it is worth (18-3.5)=13. Doubled our money, but small change, so we run it     ……… it’s a  WIN

207 Something Bold? Unseasonal Strategy For March Expiry

A debit trade….. hmm spending money is always a concern. So here’s a christmas tree

6450 put long  6300 short 5950 short 5800 long 5600 short. In effect a condor with an extra short 

Those prices  97.5 61 24  17  11.5 Thus we  have 2 longs 97.5 and 17 and 3 shorts 61 +24+ 11.5 A debit of 18  Max profit 150-18= 132. Risk at 5600, but bulletproof down to 5800

We don’t mind a drop of 10%  and to the up side our risk is capped at our 18 debit. 

Honestly not a clue with this market but we don’t mind spending a modest 18.

2 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.