210 W/e 05Mar Time for Time Spreads

That Was The Week- Brighter Later

Researching P/E of FTSE relative to where we are now, I came across https://siblisresearch.com/data/ftse-100-cape-pe-yield/

Reassuringly, the normally brutal Shiller index puts FTSE on a CAPE ratio of 13.66. Face value tells us this is really not expensive. Putting this in perspective the S&P500 trades at a whopping 33.44. Check their site for this data for other countries, and heed the advice that this should, like all data, not be taken in isolation. Historical comparison is important. However, those among us who used to follow the Motley Fool some years ago were made aware that a P/E of 14 was fair value. The US has always been more pricey than dear old Britain. Minimum wage however is reversed as the UK pays far more to its low paid.

The bond frenzy seems to have ‘quietened down’ for now. This and the repo market are otherworldly to those of us who follow stock markets, in general. Here’s a good article about the repo market https://www.brookings.edu/blog/up-front/2020/01/28/what-is-the-repo-market-and-why-does-it-matter/

Sometimes it’s helpful to understand these other factors that may influence our own market. Inflation, however, seems to be conspicuous by its absence, perhaps obscured by the ever changing basket of goods used in its calculation. Social unrest seems to be on the backburner now too.

Distraction Trades And A Massive Attack

I make it clear I do NOT recommend one of my holdings https://www.exro.com

However there was a staggering and brutal attack on this company which sent the shares down 44%. The article from: https://marinerresearchgroup.com/2021/03/02/exro-exaggerated-partnerships-leadership-concerns-and-no-revenue-pt-0-35/

This is such a damning report but the response goes into a scathing rebuke challenging all the ‘outright falsehoods’. I am reminded why we trade index options! I believe such an attack by ‘shorters‘ would have little effect on the index by attacking an individual company.

On a different tack- DAX this week -a couple of good trades Mon and Tues, then a bit of a muddle through with a couple of losses/ break evens. No trades on  digital currencies yet but DOGEGBP now 0.03620 . I was hoping to be a buyer at 0.038, so there’s plenty of time to get in at a better price.

Legacy Trades

Trade 207

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

Last week longs= 163, shorts =143 Credit 20        Now longs 56,8.  shorts 32.5 11.5,5= 15  This has not worked out I’d take a small loss of 3

Trade208 Iron ‘fly- ish

We seemed to be going nowhere with possible downside risk.

I was drawn to this- a long straddle financed by a  2x strangle, Thus we BUY  6600 straddle, and sell2x strangles

That straddle costs 123.5, and 118. So we have to sell 2x 6725 calls (63×2)  and 6400 puts (60.5×2). This gives us a 5.5 credit. The point is our cost is negative, and now our risk is at 6850 and 6200. Reward? A whopping 200 or 125 to the upside.

Last week  the long straddle is worth 269.5,and the short 2xstrangle =279. A small loss

This week- the 6600 long straddle is now 111+101.5, the strangles 6725 call= 50.5(x2) 6400 put(x2) gives us 18.5 credit+5.5 when we entered =24. WIN

Trade 209 Melt Up or Melt Down?

Short iron condor anyone? Instead of selling a call spread and a put spread we will buy them to capture any big moves.

These strikes may produce the goods: 6350/6250 (101.5-77) for puts,  and for calls 6650/6750 (39-18)

Our cost is thus 24.5+ 21= 45.5.  Upside could give us a chance to sell 6900. Buying a spread does not eliminate theta but helps, and lowers costs too. Maxmimum profit is of course 100 minus costs. We need to lower those costs.

Now 11 for the put spread and 41.5 for the call spread. 52.5 a gain, and we could look at selling a 6200 put for 23.5 to help finance the trade as there seems to be more upside to follow the US 

Trade210 Time For a Time Spread

Also known as a calendar spread we are looking to sell 2x Mar and buying 1x Apr expiry. The 6200 strike is an ‘area on interest’

Hopefully the graphic is clear, the Delta of this trade is 0.11 (x2) against 0.20 -acceptable. Gamma 4×2 against 4, that’s ok. Vega- again sensitivity is ok for the far month against the Mar expiry, and finally Theta. Basically BIG in our favour. Other Greeks areavailable but we won’t go into higher order derivatives,or Rho. Cost is 71-(23.5×2)= 24

NB The price of the underlying is the futures price which reflects the late rise of the US market post FTSE close.

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