That Was The Week That Gave Us a Vix Crushing Expiry
A quiet week(unless you’re a prime minister) with a big magic ramp on Friday. Politics aside, ‘this time it’s different’ has a whole new level of credibility.
This graphic may turn out to be wildly inaccurate, as benign alien intelligence contact is made, nuclear fusion is conquered and humans start behaving decently. So, cause to be concerned for all those’ long only’ people, the fund managers who think it’s ok to buy ETFs and sit on their butts for 11 months each year. Pension funds will be revising actuarial charts, expectations may be dashed. Worse, the working/retired ratio has shifted as boomers retire leaving a diminished workforce.The workers will have to generate substantially greater returns to support the older folk. However not all nations will feel the same effect, as India, for example, has a low median age.
Political -You’ve Been Warned
The Climate Emergency is now closer to home -‘told you so’ seems somewhat churlish, but Friends of the Earth were warning in the early 70s. Some sources say Sri Lanka’s bankruptcy is due to being told to farm organically. Misguided or misapplication? A valiant and noble concept causing real ruin. It is unfathomable that so many nations repeatedly put inept people in power. The ‘Great Reset’ may perhaps be the desperately needed change from clown despotism to rational fair governance. Pipedream? Maybe, but we have no more choices, while China and America are the worst polluters it’s beyond time to for us all to get sensible.
Enough politics, on the bright side and coming back to our tiny world, the July expiry has been pleasant enough as the last 3 trades go out as huge wins. So if we are over generous and say per one lot with these trades, we’d need £10k in margin. Minus commissions these 3 generated £1835. So if your ISA is not doing twice that return on the £20k, you may want to think again about ‘professional money managers’. Sorry, forgot you are tax free on your ISA gains- that’s a huge plus if they ever make money!
This popped up in Twitter- HIRO. Take a look so long as it’s free: https://www.youtube.com/watch?v=foUnge_FTyc
CBOE https://www.cboe.com/optionsinstitute/ this week gave us another good webinar and one of the speakers was running a covered call fund(ugh!) but they reckoned to do much better than the regular ‘buy and hope’ people. While options still frighten the sleepy world of fundies
The growth of options trading in the US has been exponential- when will the UK wake up? You can join the party, and if you follow us you can also claim a working knowledge of options strategies. That’s a prerequisite in the application.
ADAUSD $0.4358 It’s not looking good
XRPUSD $0.34178 Grim and grimmer
DAX 3 no entries 2 wins 300, 100 We seem to be on a roll!
Legacy Trades 272,273, 274. New Expiry Series Trade 275
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.
Last week- 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. We get the 40 nothing more WIN!
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. Full 50 credit WIN!
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 was around 6850, but it’s not that simple as our cost is a bit hefty.
The July puts went to nothing on Friday pre-expiry but the Aug put was worth:
We’d take 160 -we paid 66.5. We make 93.5 WIN!
Trade 275 An old Chestnut
For those with a limited account the iron condor having no naked element keeps margin limited to the width of strikes employed. Here it’s 50 and- a reminder of what the iron condor is. We sell a call spread and a put spread, our view is that the market will stay in a limited range 6875-7425
We sell the call spread, thus: sell Aug 7400 call for 49, we buy the protective Aug 7450 call for 36. Gives us 13
We sell the Aug 6900 put for 99.5 and buy the protective Aug 6850 put for 88 Gives us 11.5
We thus take in 24.5 and our risk is……. the 50 spread minus our credit= 25.5
Now I’ll tell you why this is an ugly trade. Look at theta and the short deltas- this could go against us in-the-money and the chance of that 23– 31%
The risk/reward is also not to my liking, but we are here to educate, not bore the proverbial **** off you with relentless wins.