Not Trade 112 for New Year 2019- Just For Education

Posted on Twitter by Tasty Trade

https://twitter.com/tastytraderMike/status/1079802382652002305

 

For Comparison

I have tried to crunch a few numbers-see options calculator results below. We see here a price discrepancy in risk/reward and this may be due to VFTSE=22 VIX=28. Thus we note US volatility is a lot higher than the UK. Who knows what that may be attributed to?  However, what I do not like about Iron Condors is the grind for 45 days and the low reward. I also have  difficulty in making good adjustments. Trading gurus  seem to hold a great many theories about IC adjustments. Me, not so much!  We get a good return on capital. Of course margin is kept sensible, too.  Our FTSE max risk is the 150 – 33 credit= 117. A 28% return on capital. Tasty Trade seem to get better bang for their buck though I am not sure of the multipliers here.

Tasty Trade Iron Condor

$SPY= 249.64 i.c. for February credit= 2.57 

puts 219 231* risk 12  *short strike 8%otm
calls 265* 272 risk 7   *short strike 6% otm
UK Equivalent
FTSE =6728 i.c. for February credit= 33 
puts 6100, 6250* risk 150  *short strike 7.6% otm  credit 20
calls 7150*, 7250 risk 100   *short strike 6.3% otm  credit 13 

Making Sense of It All

I hope you all understand the principle of the iron condor-selling out of the money(OTM) spreads. Our risk is limited to the max width of the strikes, minus the credit we received. So, while there is a difference in pricing, is the risk the same given the volatility difference? So, have a play with the calculator https://www.cmegroup.com/tools-information/quikstrike/options-calculator.html?utm_source=LINKEDIN_COMPANY

Simply punching in different volatility gives a massive price difference, but for the purposes of this trade demonstration, I have screenshot some FTSE prices, taken from the ICE.com  data.

 

Geeks among you may like to have a play, I have always enjoyed numbers personally. Thus what we can see very obviously is the reduction in reward as risk is reduced- the ‘further out of the moneyness’.

2019

Globally,the variables seem to be stacking up,as if unleashed from some barrel of toxic waste. As options traders however we are trading…..variables. We are not the one trick ‘buy and hold’ ponies. We are not the 100% directional futures players, who can get smashed to bits in a heartbeat. And…..we are definitely not intra day forex traders with all the randomness that entails. Our reward comes from the variables which are calculated mathematically. That does not rule out randomness, but with diligence you and I can optimise the various market scenarios. Options are great for wise traders, and for dimwits such as myself, who can understand the concept.

Filed Under: FeaturedInformativeLearnStrategiesWeekly Trade Idea

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

RSSComments (0)

Trackback URL

Leave a Reply