Trade 123 Week Ending 15March

FTSE- Tuesday’s intra-day Meltdown

That Was The Week

We noted that Brexit hysteria was conspicuous by its absence. In fact the market was positively serene. So, 5 consecutive up days, up 1.74% and on the week the £sterling is up 2.16%. Don’t worry, be happy. Thus, bewildered does not even come close to the Brexit sentiment, and this trader is sidelined for now. My feeling is that sterling could drop 5% overnight and the FTSE might make some crazy high. I don’t want to be short, and I am not inclined to think there’s much of an upside. Debt lovers* are stocked up to the roof these days and a slight nudge, could bring down the house.

*commercial- BBB bonds, and household

How Did Those Trades Do?

We have had yet another fantastic run of winners for the March expiry as the last trade,number 122 scored a terrific 32. We paid 2 for this remember ? In addition all the other trades, from 118 onwards made decent profits. As in the comments:Trade 121 made a lofty 18 this week as FTSE danced around and actually flirted with a drop on tuesday- yikes! A drop????
Then…..Trade 119 – made 82-18= 64
And so… Trade 120 the calendar straddle, paid 122 now( 46 against 216) =170. I think that’s a lot of sweat for a modest profit-oh wait that’s not so bad 40% and low risk too.
My least favourite strategy, Trade 118 -well that was the jackpot for I.C.

Understanding Options Trading

Traders, newbies, is it coincidence that we see real trades posted here and real profits? Dissenters show yourselves! My stock in trade is not sleight of hand. My own trading is nothing like as good as the track record here, I admit. The ethos of the site, however is to show a real trade every week for better or worse. I do take some of the trades, other times I just have to take a position. Educational value only, remember. Thus there is no attempt at deception or tricking traders into a subscription. We have a passion for options, we live in the UK and retail options traders are as rare as hen’s teeth. More please!

But Options Are So Difficult…..

One might venture that this is because it’s a dark secretive world. We want to change that. We are selling enthusiasm for options, nothing more. Why would we do that? Because it is the only level playing field. While directional traders are fighting algo’s we are fishermen on the banks of that river. We catch plenty without hysteria, with reason and good sense. Our guides are volatility and the Greeks. The underlying is secondary. I challenge anyone to sit there looking at a 5 minute chart of anything, and make money. In time they will just break even,with guessing direction. If they are good. Give someone the essential options knowledge and they will be profitable forever. It works for this idiot. It is no illusion.

Trade 123 -Caveat This is An exception due to Brexit

I am sidelined by choice with my own real money, but I am compelled to feature a weekly trade. Actually there is no compulsion, just a genuine desire to enlighten. Buy me a beer when you’ve made your first £1k.

Let’s have a reverse ratio diagonal shall we? Go on, you know it makes sense. So here’s the plan for Trade 123 in the Brexit zone.

We are buying the May 7000 put and selling 2 of the April 6950 puts. Typically with a diagonal you’d sell a higher strike in the near month puts. And you’d only sell one for each one you buy. Therefore we need to do some maths. First up the cost- for aye, ’tis a debit trade 81-(28×2)= 25. Secondly our risk…….below 6900 it gets interesting and above 7300 it gets depressing! Our Greeks :17×2=34-.29= 0.05 almost delta neutral.That’s ok. Gamma (8×2)-8=8. Not fabulous.Theta: 1.0442 -that’s ok, in our favour. Vega: 1– that’s acceptable, not a lot of oomph against us. Logic of the trade? Little more than theta in a flat market. As it cost 25 I’d like to get 50. Honestly it’s hard to pick in this obscenely low volatility with so few players.

Here’s a link to a graph: http://optioncreator.com/stuskul  I don’t find it ever so helpful, but please have a look.Fun does not have to come with a price tag.

Note to self: Not everyone thinks options are fun…….

 

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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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  1. Terrapin Trader says:

    Trade 123 feeling bad as I have no ‘skin in the game’ and this can be an influencer. As expected this trade has done little to date

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