276 W/e 22July Options, We Ratio Calls

That Was The Week Vix Down Again Despite the Herd of Elephants in the Room

So again we find ourselves with a political Zugzwang. (Zugzwang is a chess term referring to a position where a player has to move, but every possible move puts them in a worse position than they are at present.) We have a prime ministerial ‘race’- hardly a race or a fight, more like a sandwich somebody left in the rain. Italy has its 70th government since the second world war. France’s Macron is in limbo, and most of Europe and some of the UK is on fire. The US faces dramatic water shortages, China is flooded, and has a Covid outbreak. Covid again enjoying a resurgence, when we thought we were over the worst. We have the worst inflation for 40 years. ECB raised from very negative, to very negative rate minus 0.5%FTSE has a good week!

I think we should lighten the mood with this https://subscriptions.finimize.com/content/Q29udGVudFBpZWNlOjQ3MDk=/how-to-forecast-the-markets-better-than-wall-streets-been-doing?email-id=0334eeba7f127e429d00eb87f53f6690995594&name=Doris&title=Here’s%20how%20to%20do%20a%20better%20job%20of%20predicting%20where%20the%20markets%20will%20go%20than%20the%20pros%20have%20been%20doing&utm_campaign=daily-european-18-07-2022&utm_source=email&utm_medium=Daily%20European%20Edition%20Users&utm_term=Daily%20European%20Edition%20Users

Yikes! Sorry about the length of the link- hope it works ok. And for balance from my inbox: The 4th Horseman of the Financial Apocalypse arrives 7/27

So, not to take anything away from these fine people but if they know something and want to share it, you’d expect it to go ‘viral’ and start a chain of events to fulfil these prophecies.

Or not.

Fact is nobody knows -that is what we know, but it is harder to make sense of a market that seems to fly in the face of so much doom and gloom. Yet, we are told companies are raking it in -corporate profits up >30%. £150 billion in savings poised to buy into something. Property, stocks, gold? The man on the Clapham omnibus (that dates me) would argue that savings are the worst way to use money in high inflationary periods. Nassim Taleb reckons it’s ok to keep your cash sidelined ready to pounce. But when will great opportunities come along?

The Options Advantage

Every day is a potential Xmas for us. We can buy and sell in combinations at different levels and time frames. In multiples or singles or ratios. Imagine being able to buy a stock for £10 today, or £8, or being able to sell it at £12. Or to own it for free. We are gymnasts and conjurers  in competition with indolent pedestrians. People are lining up to get 2% interest on their £1,000. We don’t even break into a stroll to make 2% a month. Look at further dated options, and further out-of-the-money possible strategies. There is a delicious world, like a sweet shop and we can fill our boots. However footwear enhanced confectionery is probably not quite the thing! But, you know what we mean.

Ice Feeling the Heat?

Your intrepid trader has had lively discourse with theice.com  about serious errors in price settlements. We use ‘last’ price which is the day’s settlement price. The SET is the previous day’s settlements. Hopefuly you can see the stand out crazy numbers,inconsistent with the decreasing values of puts as you go further out of the money, in fact it’s really random. It’s been fixed as of Friday, but beware these are sometimes not actual prices. Bid-ask is usually reliable in the live sessions, it was just overnight end of day stuff that was problematic.

Distraction Trades

ADA   $0.48  A glimmer of hope?

XRP   $0.355  A slender week again, you wouldn’t bet the farm.

 DAX  Well, we had a monster week- 3 days 100+ 2 days break even (+30)  Over time this has done well and of course by limiting losses to a 30 stop

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 

The call spread is now 16 the put side 6.5. Gives us 22.5- the optimists will point to the 10% + gain!  We like more than just a little tickle.

Trade 276 We are Bullish/Bearish, or whatever

We always aim to buy and sell in combinations and this week’s offering is a call ratio spread, with a moderately bullish bias. However we don’t mind the market going south either. In fact we cannot lose unless the market hits >7600 in a big way. We buy the August  7400 call and sell two of the 7500 calls. Those prices 56.5 and 28.5(x2)=57. So you see we have a credit of 0.5 if we ignore commissions. We ignore commissions- as all our trades are for educational purposes. This trade attracts a fair chunk of margin given the risk to the upside is infinite.