Trade 128 Week Ending Friday the 19th………….

That Week in Pictures- Market flat Vol decreasing.

Expiry week was a damp squib, but that’s what we have come to expect. Traders know volumes are not terrible but not exactly setting the pulse racing. A sobering thought- those Extinction Rebellion protesters may know Friends of the Earth started 50 years ago. A powerful lobby eventually got the law changed about CFCs- as the ozone layer was vanishing. We have managed  to limit the use of these damaging chemicals. Our generation will not see the damage repaired for years yet.

I digress, though my point is, that protest does cause change and evolution. Our tiny corner of this capitalist experiment may continue for some time yet we hope. However, capitalism is under threat though and it would be churlish to ignore those voices. By way of explanation, what we do when we trade options: We provide insurance, we inject cash into the market, we put our profits to good use. Ethically I think we are on a fair footing. Many FTSE100 companies may not be able to make that claim. That’s an issue we can address separately, should we feel so obliged. (I do!)

Those Gloomy Losers

No,not the climate change protesters, the last few trades. Good news is up ahead. This trader has to confess that it is all too easy to get out of step with the  market. I like Van tharp’s market commentary. He uses SQN to note the market type- Bull Quiet is probably where we are now. You may like his free resources: https://www.vantharp.com/trading/super-trader-fundamentals/ and https://www.vantharp.com/trading/free-resources/

As traders we may need to step back and look at the bigger picture sometimes. Fighting the market may be a good weight loss regime, but having a ‘notion of the motion’ is vital.

volatility with the emphasis on the least volatile- gold

Markets are on an upward trajectory and we may have to hang out for a dip to get some put premium in the locker. There is little value in buying cheap puts, when there is good reason for them to be cheap.Time may not favour such trades and you will be right some day, but can you hold out?

How Are The Running Trades?

TRADE 127

We were getting bold for expiry, as premiums are cheap. We bought 7350/ 7300 put spread ( 8-4)=4, but we also got 7350/7450 call ratio spread 85 -(18×2=36)= 49…… to get 100. I think we can take  7448 as expiry. In which case,we SMASHED IT! Almost 100% profit.( The tiny put trade went out worthless ). 

So nice to be back in the saddle as Brexit is no longer a consideration. This trade might bear repeating for May expiry

TRADE128

Already the seeds are sown with a repeat of Trade 127. Long 7350,short 7450 x2. We could spice this up, and add a put butterfly  57 -(29×2)+ 16,= 15 (strikes 7400,7300 7200) and convert the call ratio spread into a butterfly by the addition of long 7550 call at 18. ( 114.5 – 53×2) =8.5+ 18 =26.    Thus, we are now in for cost of 41. As ratio spreads only we lose our safety harness and go commando, but our costs are trifling. 8.5-1= 7.5.

Here’s the thing, we make profits if the market stays around 7300-7500. Our butterfly typically has to run to expiry, whereas a ratio spread can make quick profits from theta in a few days. Think about your choices-and if you elect not to go butterfly, how would you deal with a big market move? Let’s see as the events unfold….

 

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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:

    The 7350/7350 call ratio spread bought for 8.5 could now close out for maybe 14. I’m inclined to hang on a bit. The put butterfly now around 17, nothing to do-these always have to run close to expiry.

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