Trade 116 Week Ending 25 January- Two More Winners

The Week- What Happened?

After the ‘apparently lunatic’ rise last Friday, I’m sure we all jumped aboard,thinking ‘this is ridiculous’. And well done us! I sometimes think I am seeing what the market isn’t. I believe that given the massive data the funds have to trade with, it must be bewildering. We filter out what we consider unworthy. We understand what is just the media trying to sell advertising space. I note the Telegraph must be regretting another bad decision as they pay out millions to Melania Trump. We check facts before we move don’t we? Traders use real option prices, because we have actually bothered to find out. So, modern day journalists we are not.

Taking this on board reminds me of the time served axiom- we only change the trade when our reasons for taking the trade have changed. You guessed it- I broke the rules and closed out early. So shoot me, please, I’m a terrible trader. Now, I’m looking at a massive slump in vol, and still some 20 days left to expiry and 48 days to March expiry.

Some of the Good Stuff

I was made aware of some interesting videos on Youtube this week. https://www.youtube.com/watch?v=vmW97dasPR0&index=2&t=0s&list=LLQWrtPult3vXqZiq7BqMOAQ

And this series: https://www.youtube.com/watch?v=er-PdEHLHLI&index=5&list=LLQWrtPult3vXqZiq7BqMOAQ

Denise Shull seems to be on the money-as I have long taken on board her views, before actually knowing about her. The second link to Anton Kriel is down to earth common sense stuff that needs to be said. Perhaps plucked out of the air but I liked the 90/90/90. This chimes with my experience of noobs(newbies) who just want to start trading and making themselves easy prey for the market. Enjoy both series.

How Are We Doing with Current Trades?

Trade 114

Remember? We were buying the Feb series puts 6800 paying  96.5 selling the 6700 for 68.5 and selling the 6600 for 48.5. Our trade thus gave us a credit of 20. We were buying the 6800/6700 spread and selling the 6600, so our risk was at 6500. Understood? We proudly own the spread that is worth 100 if the FTSE drops below 6700 at expiry. We have no upside risk, especially if that ‘resistance’ is taken out, and we have 20  Currently 89, 51, 28.5  so, the spread is worth 38, you could close out the 6600 put take in 9.5 IN ADDITION to the credit at the open. Winner winner tofu diner! ( We don’t eat animals, it’s not nice)

Trade 115

Looking at the same 6800/6700 put spread-this now trades for 18.5 and might be a buy while vol is so low. We could sell a 6500 put for 12, reducing our cost and giving us some modest risk at 6400.

6500 put= 15.5 the spread is worth 38. Happy days-another fab win, even better if you’d been able to ‘leg in’ when the 6500 put was 18.

Trade 116 Seeking Some Clarity

The £ sterling’s big rise may be due to the world thinking Brexit is no catastrophe and something will be cobbled together. Political events are mildly disruptive-derivatives rule the world, not politicians. They would be wise to heed that!

So what can we do? Let’s get clued up with the chart and some option prices.

Just my take but I like the idea of a strangle- but with a long straddle. We have most risk limited to premium paid, and it ain’t cheap, but…

We are looking to sell 2(two) strangles against buying one straddle*.                                                                                                          Prices: 6800 Straddle= 83.5+89= 172.5. Strangle: 7000 call =16, 6600 put =28 thus 44×2=88. Our debit= 84.5. We have risk at 7200, and 6400. We could lose 100% of premium paid if FTSE expires at precisely 6800. So… we are not going to hold this to expiry. Max profit 115.5, would we take 40% of that? Yes we would. 20 days to go, let’s roll.

Fancy doing the BS calculations? https://www.cmegroup.com/tools-information/quikstrike/options-calculator.html?utm_source=LINKEDIN_COMPANY

  • Feeling really spicy and want to ramp it up? Sell 3 strangles-yikes! 

 

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

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