Trade 142 Week ending 26July

That Was The Week

Absence of Data

We are, as UK retail traders mostly deprived of good data. Thus the demise of VFTSE has meant looking for a substitute. Readers will doubtless be aware of Bollinger Bands https://www.bollingerbands.com/bollinger-bands

In our case, being somewhat visually inept, we use Bollinger band width. The basis of this is that a move that increases volatility is likely, as can be seen in the chart.(The width being self explanatory and a dramatic drop may mean a big vol explosion). It’s very far from being 100% but, a Bollinger Band squeeze is an oft used  key indication of an upcoming move. We’d like a down move based on the flat market recently and dwindling volatility. Buyers know no bounds,however, so we are loathe to short this.

A New Broom*(Always look after your broom)

Jokes aside we are now under the leadership of BoJo, in modern parlance. While he has made *sweeping changes in cabinet is this just another bunch of ‘also rans’? From my understanding we are more likely to have a general election than Brexit. Where does that leave markets?

Sterling has taken a dump, at the start of May it was >1.30 to the USD. We think this has helped keep the FTSE aloft with foreign money inflows buying ‘cheap’ stock. But cheap is a relative term.

However, many commentators http://tradingdiary.incrediblecharts.com/2019-07-26-markets-economy-gold.php think the markets are overpriced. From the media in the US we are told share buybacks are the key driver. Opinions are one thing, profit is another and that is our primary driver. The economy is not the market, but globally economies are slowing down.

 

Legacy Trades

Just this from last week and another win, though still running ….for now.

We had sold the August expiry 7225 put for 22, and sold the 7650 call for 11.5. Total credit 33.5. We’d take 10 lots here and use some margin ± £20k. Risk at 7191.5 and 7683.5.

Now 17 and 7 = 24  A return of about £900 on our margin of £20k. You’d think it’d be possible to double your account on this basis, but does it always work?

Trade142 A Debit That We’d Rather Not Have

We have a long put spread. We own the 7400 and have sold the 7300 for a debit of 16.5. I hear you ask- what’s the logic? Well, if we see a drop below 7300 it’s automatically a smart trade. Our first objective is to recoup the 16.5 and manage our risk. We have a number of ways to do this. I will try to update this dynamically, during the course of the next week or so. We make adjustments all too infrequently here as trades so often seem to win ( I don’t have skin in the game in those ones!). Max profit 100-16.5= 83.5, risk 16.5 margin=zero.

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

RSSComments (2)

Leave a Reply | Trackback URL

  1. Terrapin Trader says:

    I said volatility via Bollinger Band width presaged a big move- of course like an imbecile, I’m pointed the wrong way -I have to ditch my stopped clock downside bias- I’m just fighting the tape and that way is ruin.

  2. Terrapin Trader says:

    Trade 142 -winner and closed out
    Here’s what we did: Market smashed up,so what do we do when in a losing trade? That’s right we ADD to it. Again- we ADD to it.
    We bought the 7500/7400 put spread for 11.5. Now we are in for 28, owning a big old 7500/7300 spread. Today we sold for 43.
    About 50% profit in 4 days. All will be explained further at the w/end. Reason for closing? Nice profit and the beach beckons…

Leave a Reply