Trade 137 Week Ending 21June


That Was The Week

Ugh! Volatility is officially in the crapper. Another annoying week of the F grinding up almost 1%. This trader was hoping for a softer week and anything below 7375 would have been perfect. The market does not dance to my tune, but we have had a great run. We still have 4 weeks toJuly expiry too. Politics has little relevance but a weak pound may have contributed to an upward market. Though personally I doubt the conflation, who the heck know why funds buy which shares? Thus we continue to trade the index in the knowedge that not every Chief Officer of all 95 FTSE companies will be removed after a scandal. I once read that a certain fund manager bought the company shares on the CO, not the company’s fundamentals. Like football managers, some have a magic touch.

Mystery- why do we have VIX at 15.4? How can an index with 500 components be more volatile than FTSE with only 95? Do we have a tightly coiled spring in VFTSE? The chart below shows VFTSE never spikes up above VIX. British stoicism? Denial? Indolence- ie nobody turns up to sell when the market drops! (Gets my vote as a Brit!)

we are always at or below VIX

We Never Stop Learning

I have long been an advocate of online learning, and it is a noble endeavour to educate for free. I spent some time in Beverly Hills Library- next to the Beverly Hils Cop shop, almost 2 decades ago. It had periodicals, and even a couple of options books, eagerly devoured by yours truly. On reflection I wish’d I had blagged my way into the Pacific exchange and seen real live trading. Those days are over, sadly, and that way of life has gone see–H8SY334Zw

Options trading is a tiny niche market for few traders, but so rewarding. Barriers to entry are high but that is by necessity. Thus I do believe our brokers want us to stay in business for years to come. So they collect comms while we collect profits, not necessarily in that order! Nothing come close to options trading, however. We are the sixth formers in the local comprehensive.

Running Trades:

Trade136 Low Volatility Play

Iron butterfly for credit of 83, risk 100-83=17.(at <7250 or>7450) We are selling the 7350 straddle buying the 7250/7450 strangle. 5 lots= £5,000 margin. Here’s the skinny: 7250 put 61.5, 7350 put 98, 7350 call 94  7450 call 47.5. Logic of the trade- super low risk, but we can adjust with market moves. Now 79

Trade 137 What The Heck!

We live in an era of rising prices in every darn thing-making a mockery of accepted wisdom ie bonds and gold move inversely to the stock market. ‘Buy the Dips‘ is the mantra. We need a dip first-we seem to be in full on dumb money mode. On that basis -an almost zero cost low probability trade that will benefit from a dip. We are buying the July 7150 puts(21) and selling twice the amount of  the 7000 (10). Debit 1.  Max profit therefore…..149! Risk at 6850.Say we do 5 lots and our margin might be about £5,000. We’d be happy to get 15-20, but this is a trade that can be adjusted many ways. Caveat-we are selling more options than we own in a low vol environment. This trade could get ugly.

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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  1. punjabi says:

    Great post and trades Windlesham. For the Iron Fly (trade 136), what’s the expiry?


    • Terrapin Trader says:

      Hi and thanks-always trade the near month- July for this one- I should make that clear. My aim is to educate and I should be communicating in a way that is easily understood. Keep watching, and please comment -we love interaction.

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