Trade 121 Week Ending 01March

That Was The Week

We saw a drop of 1% and barely a wobble given the level of crazy. With this change choosing the best house loan deal is really important. Traders are however, duly concerned about the low volatility as VIX also scrapes along the bottom- currently 13.57% which equates to low vol in mid 2018. We would like to use IV ranking, or levels that we can have some degree of certainty about. Thus, mean reverting needs a mean to revert to. So where is it? I allude not just to the simple calculation but the actual numerical number. Let me suggest that the VFTSE mean is 12, and we are at 12 and change. You say “not helpful”, but we ask,does it matter?

Recently our chums at Tasty Trade produced this:

I think you may have to watch the whole show, but the gist of the research is this: Trading a 1 standard deviation (0.16delta) strangle 45dte in high or low vol markets does not matter. We see outcomes that are almost identical. We just make less money when vol is low. Now this is simplistic but based on a great deal of good data.So, we should always be biased towards having short options. I’d advise…….probably.

Correlation is not causation.

Driving back from London listening to a BBC radio 4 programme ‘Inside Science’. The presenter asks whether CO2 and Methane levels were thought to be correlated. Did one cause the other? I understand the data got weird and nobody is sure what any of it means. Anyway, that’s enough science already. I feel this is often an issue with the financial media. £sterling rises, thus  FTSE goes down as exports are more expensive. Whaaaaat? Here’s a weekly chart of FTSE/GBPUSD

I cannot see any particular cause or effect, just the random noise of free markets. While forex is a true free market and there is rigging, it makes no sense to regulate through exchanges. We’re told it would make no difference other than to lay the blame for rigging, on a regulator. Therefore don’t fix what ain’t broken. Forex traders argue, and maybe rightly so that all you can trade on is the chart. Chartists tell us everything is in the price. We have no argument with that, and graphics are a powerful aid to any endeavour. So does the £ affect the market? Does the market affect the £ and do they even move in lock step?

Trade 121 and …How Are We Doin’?

Trade120 the calendar straddle has lost a bit -we paid 122 now worth 110.

I then had Trade119 call butterfly cost 18 now 17, then……

Trade 118 iron condor credit 14 cost 4 to close out

Of course these trades still have another 2 weeks but the iron condor can only go to zero, so we’d close out for a profit of 10. Good outcome based on the max loss of 50 minus credit taken in. Logic? Would we take that trade now for a credit of 4, given the risk?

Trade 121

I am bereft of imagination as Brexitosis takes hold, and wish I could show some more radical stuff. However, daft trader that I am I am opting for a put ratio spread. Buying the Mar 7100 put(69) and selling 2 of the Mar 7000s(32.5). Giving us a debit of only 69-(32.5)= 4. Cheaper than a politician’s promise!

Logic of the trade? We seem a little adrift as political uncrertainty has translated into lack of volatility. Theta(time decay) should be kind to us, and we could make a max 100,(minus debit of 4) as the February low was 7000.

Feel free to try the calculations

Caveat- risk is at 6900 and the market could do absolutely anything-it’s just a demo, not advice.



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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