274 W/e 08July Options Expiry Looms

That Was The Week, Disconnects and Non Farm Non Event(again)

July 4th was apparently a day to close the US stockmarkets, but a relatively quiet week prior to expiry week, in our world. Government shenanigans seem to have had no effect, being already baked in. The greenback continues to strengthen but £ sterling against is now sitting just below the 200 ema on the daily chart. Little to get excited about, though it appears to be worthy of long term theta plays. Iron condors, collecting the premiums as time decays them. Just a thought- we don’t know about currency options.

Trading Talk

This popped into the inbox: https://us12.campaign-archive.com/?u=6f6dd1454734e10d0f08f73e6&id=dc119d2915&e=a6d15b8777

Really helps to make the point about trade selection, as it’s not a done deal with calendar spreads when your underlying is as reliable as a Triumph Stag ( other 70s British Leyland cars may also apply). It also reminded yours truly of ‘delta neutral’ strategies, of which there are many- example strangle, butterfly etc. Both can trash your account though butterflies can be a much more frugal way of going bust. Personally I believe butterflies are not only directional but so range bound as to be like archery. Bows and arrows are fun but hitting the target even 20 metres away is not simple, same with butterflies. Strangles- you have to be brutal, and close out the losing side and reconsider. We’d like to hear your pet hates.

Calendars are great when you ratio them, but there will be bangs and crashes along the way. Trade  274 again we pick a ratio calendar, selling 3x near month buying 1 far month. Trading beyond the next expiry is a different mindset and a personal choice, though your intrepid trader does have December positions. Theta can be a slow burn but most effective when near to expiry. We only trade monthly options expiry. Weekly options  in the US? No thanks.

Distraction Trades

ADA Cardano $0.48 -a slight improvement

XRP Ripple  $0.345   -who knows?

DAX 3 wins total 550!  1 loser -30, 1 no entry



Legacy Trade, Trades 272,273 and 274

It’s been a while, but we never advocate naked trading. Partly naked, this put ratio spread despite the massive rise on Friday offers some value. We buy the 7100 put and sell 2 of the 7000 puts. This gives us a credit of 94.5 and (67.5 x2) = 40.   Now to convert this to a butterfly would require the purchase of a 6900 put -currently 49  and to offset the cost, sell a  6700 put 26.5  But this is a course open to us knowing that relationship may remain of similar price, should we need to lower our risk level.

It was  36  ( 99 and 67.5×2 )  Barely a change

Now- the long 7100 put is 45.5   the short 7000 puts 27.5 (x2)= 55 Handsome profit  40-9.5=30.5  WIN! 

Run to expiry of course, for the extra.

Trade 273

What do the numbers tell us? Calls are expensive so the market may be mildly bullish -we note the FTSE future, after hours, and US closed up on Friday too. So let’s have exposure both ways with our old friend the Jade Lizard- we sell a call spread and a put. We have no upside risk, because the risk is 50 and the credit is 50.

Our strikes, therefore our call spread: 7300 call for 50  7350 call  for 35. Thus our call spread gives us 15, so we need the 6850 put for 35. For once the arithmetic is straightforward. Our risk to the downside is thus at 6800.

Call spread now 30 and 17  and 13.5 for the put  =26.5  Remember we took in the credit 50 so we have effectively 50% of the max profit  WIN!

Run for fun, to expiry.

Trade 274

As aforementioned, (good word!) here’s our pick -the ratio calendar, ballsy and thought provoking. We have repeatedly mentioned the vol swoon on Friday the week before expiry. Compare to Thurday:

6950 put 21.5 x3 (July) Aug 6950 put 131 – Debit 66.5 

Thursday’s prices: 28 x3   136         Debit 52

Our risk is around 6850, but it’s not that simple as our cost is a bit hefty.

Check out the theta on those puppies! Pricing may be variable, but the principle remains