That Was the Eeeeek Ending 02February

What The Heck?

Who pulled the plug? This is classic-the trader cannot update beliefs about the market. Call it torpor,whatever but this is the first dip and it’s a year overdue. Should we feel out of touch? Yes, in a nutshell,we have been asleep at the wheel. Personally I was long a call strategy, but also have a put strategy that is mildly in a loss but it goes to expiry in 2 weeks. Our last trade 64 now  looks a bit ugly as the near month 6350 puts are now 36.5(x2) against the March 7350put at 88, with 7150 puts at 45. Assume the worst,however and that spread is worth 200.

So What Happened with The Markets?

All markets took a hit and probably more to come next week. Why? No idea. The media will tell you it’s inflation/wages/interest rates/bond yields/ Trump/Putin. Truth is probably that a lot of complacent dumb money suddenly got scared. There’s an awful lot of dumb money, so buying may well happen quicker than we think. May the Force be with them. We don’t want people to be crushed by the markets

What’s To Do?

When Vol is high we should be selling– keeping it simple the 7600call(16)/7200put(15.5) strangle gets you 31, and expires in 9 trading days. Fancy them apples?Friday’s action, while giving us closing prices which we have used since trade 1 may not be useable this time. Our trades, however, are for illustration purposes so we’ll do something. All along we have looked for trades that go wrong-maybe now’s our chance to show the power of options. Imagine you were long a FTSE future on Monday at 7671. You’d now be £2,280 worse off if you held. Maybe you’d closed out. You have to guess a direction.

Look At What Suits You

You, however, can choose any timeframe, any distance from the market. Go check out the numbers at: data.theice.com

Filed Under: FeaturedInformative

About the Author: First found out about options in 1995.From the arcane magazine Exchange and Mart! First trade- a covered call on VOD in 1999. Made 10%,VOD almost doubled. That's when I realised I was not a good trader,and I was forgiven thanks to the amazing world of exchange traded options

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