258 W/e11Mar Calendar Spread time

That Was The Week, More Horrible News.

Rather flippant to make any statements on current affairs, but the ‘efficient’ market is now being tested. FTSE had a brighter week -if you’re long. Here’s SPX for comparison

Why the difference? We don’t know and it might be churlish to suggest that Londongrad has been getting a golden hello from certain quarters who maybe needed to empty bank accounts in a hurry. We shall not make such speculation, comrades.

Back to the knitting, and a couple of things popped up this week- firstly the put/call ratio. I confess to not using this for many years but each to their own. https://www.thetechnicaltraders.com/the-put-call-ratio-a-technique-used-to-gauge-market-extremes/?he=davideppel1@aim.com&el=email

No reason NOT to have additional layers of trade making decision tools. However that is not to defend the crazy TA that some people use with multiple indicators. While there’s comfort in that, if it doesn’t make you profitable lose it!

Here’s something we really like to use:

https://twitter.com/VIXandMore/status/1502345767104630785?s=20&t=Sxj0-_EuYyVrrExZRgqLYA

Here’s the graphic though the Twitter thread is interesting.

Nod to Bill Luby

So the old adage-VIX is mean reverting may not apply in a crisis, for a considerable time.

I hope it’s easy to understand and note that 2008/9 (yours truly did well in this time) saw 170 days of 30+ VIX

Free lunches aside, juicy premiums are not just low hanging fruit -there’s a very harsh bite when you’re wrong.

Distraction Trades

DAX Thurs biiig drop  250 points win, Friday biiiig up( fake move?) 500 point win! SAY WHAAAAAAT!

ADA Cardano $0.7958  More despair

XRPUSD $0.7873      Just as much despair as ADA!

Legacy Trades and 258

A GUTS is an in the money strangle- so you will always be closing for the minimum debit. Here we are 100 points ITM either side, so this trade can never be cheaper than 200 to close (in theory, I’ve yet to test that). We sell the following March options:

7400 call 197    7600 put 220.5= 417.5 credit 

 

256 Same again

In such uncertain times we would prefer to stay on the sidelines, but if push comes to shove -we repeat 255 with that juicer premium. 450.5

Friday morning and the FTSE dropped below 7200 which meant that this trade had to be closed out at latest at that stage.

7200 Was the point at which this trade could no longer be profitable.  FTSE opened at 7193 Friday morning and already the trade at close of play the trade was 502.5   a loss of  68.5 x2 =137      aggregate trade entry:    (417.5+450.5)/2= 434

257  recouping a loss?

At this point it’s worth reiterating: Sometimes you make more by sitting on your hands.

Taking a loss is tough but we’ve had a fantastic run, sometimes pushing the envelope a little too far, with surprising results.

Trade 257 is precisely this : Sitting on our hands.

Now 502 – We would, as pointed out, have closed out as soon as the likelihood of profit had gone (FTSE<7200)

Let’s see where we expire on Friday 18th

258 Expiry week trade 

Dare we risk it?

It’s a ratio (3×1) calendar spread. We sell 3x 7500 Mar calls at 17.5= 52.5, and we buy 1x Apr7500 call at 78 We pay 25.5

Here’s some Greeks:

Here’s the numbers- Delta 0.12×3 minus 0.26= 0.10  Vega 7×3= 21 minus 6 =15  Theta 4.2179×3= 12.6537 minus 2.3535  which gives us 10.3002 Thus our monster theta may be the redeeming feature.

Reasons for the trade: The market might have a large drop but it’s reasonable to assume the market will not smash up so dramatically as to render this a big loss. (though with so much liquidity it’s far from assured) It is likely we will not lose much even if the market does plummet.  No point selling a bunch of puts that might take us to the cleaners. I have to put aside my bias against calls as this looks ok to me.

 

And don’t forget:

It’s what we rather quaintly call ‘summertime’

One more thing: If you have any questions no matter how daft you might think they are – email: surreyhantstraders@gmail.com

1 Comment

  1. 258 MASSIVE winner! 96
    257?…… 222.5+18.5 = 241 -that is the cost to close- CREDIT was aggregate 434. 193 MASSIVE WIN!
    What does it take to help peopl understand that options work ?

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