Trade 118 Week ending 08 February-an apology

Apology

Sorry- I confused last week’s trade with 116 when it should have been 117. We will look at them both shortly.

Meanwhile:

this week’s action

So- What’s Going On?

Europe in disarray-desperate attempts to save Deutsche Bank, the DAX has big down days, the £sterling barely blinks. I am naturally cynical and firmly believe people talk up bad situations. However FTSE is 65% foreign owned and they are putting their money where their mouth is. Confidence in the UK then is not really faltering. Some canny traders may be building up a secret stash of puts. Open interest shows an inordinate amount of 7600 calls for March in fact this is huge- 91553.These puppies  are trading at 1.5-but are these positions simply sells or buys?

We have been down this road before about open interest- I take it as a strike that will no be hit, but that’s just me.

The Folly of Debt

I have recently seen a few presentations decrying the economic sense of buying a home. My take on this is simple. You have housing costs whatever you do, and in a low interest era mortgages tend to be cheaper to service than rent. A private landlord has to service a mortgage-you can pay his/hers, or your own. Thus  I maintain the rent to own theory (save to invest in trading) only holds up in a flawless cheap tenancy. I am sure that with sufficient deposit, property purchase generally makes sense. I aim always to be even more sensible- get one’s living costs pared down so that in lean times you can get by. Mortgage can be good debt,and will eventually be zero cost.

When debt is bad:

We can see the logic of servicing debt to increase GDP stopped working over 50 years ago. We all know that governments try to sell us the line that they are ‘managing’ the economy. They are really not, but that’s for another day. Traders like us would be carted off to an establishment if we ran our business like a government.

How Did We do? Trades 116 and 117( The proper ones this time)

Trade 116– it was a x2 strangle 7000 and 6600 with a long straddle 6800.Debit 84.5 currently about 93, though I have no data for Mon 04Feb. We can hang on for expiry, but it has never shown a good profit, in this oddball market.                      Trade 117, however: We are buying 4 of the Feb 6800 puts, selling 1 of the March 6800 puts.(78-18×4) Credit 6.                                     This has been a loser, as I had suggested it might be ugly- a loss on Friday of (36-6)=30. I think it’s hard to determine if this could have been exited for a modest profit, but doubtful. A loser, and one I was not happy to take, remember:

Caveat

I am not comfortable about this trade as the logic for me, would normally be a volatility skew- ie the front month having very low vol relative to the far month. I don’t believe this is sufficient here. We would risk about 20 if possible.  Thus we are not yet fully engaged in trading March options. Somehow that seems a bit too ‘springlike’ when we are midwinter.

Beware the Ides of March

We feel it’s probably a bit nuts to trade in the run up to Brexit. Fund managers- mostly outside the UK seem to think otherwise. Traders here may wish to take a look at implied volatility in April options. The 7000 straddle-not very scientific I know but calls have vol=9.95 put vol= 18.36. For me that is really not high -going further OTM (out-of-the-money) is just the same. Complacent people make rich pickings for smart traders. We may be entering another 2017 however- flat as yesterday’s pint of bitter. Sharp eyed chartists might make sense of the VIX. Does the persistent low level of Williams%R mean anything? I place some stock in Bollinger bands too.

Trade 118- At Least I can Try to Get That Number right!

Trade 118– we are looking at (again not my favourite) an Iron Condor. We are selling a 6750/6700 put spread and selling a 7300/7350 call spread for a total credit of 6.5+7.5=14. Maths buffs among you will see this is against a max loss of 50 minus 14=36. Detractors will be saying, and rightly so, this is a terrible trade, and if so, is the reverse a better prospect? Tasty Trade  https://www.tastytrade.com/tt/ often suggest taking profits at 50%,and maybe that’s the way to go here, taking 7 and closing out. We will  run this puppy and see the various scenarios including trade ‘repair’.

Logic of the trade- we don’t want to get blown up by crazy moves as the ‘B’ event is so near. Gun to my head? I’d buy nearer the money spreads and on a big move, sell further out options to cover costs. EG: 7400 call currently 9, 6400 put currently 13.

I reckon the calculations make grim reading – but……. maybe you can see a way to use this info.

 

Filed Under: FeaturedInformativeLearnStrategiesWeekly Trade Idea

Tags:

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