Trade 143 Week Ending 02August

That was the Week- When The Markets Were Trumped by a Tweet

Fooled By Randomness

In a week that saw the market swoon from a dreary FED announcement, a bonkers Tweet and an innocuous non farm payrolls report. Instead of making idle coment I’d like to introduce a couple of things that caught my eye this week. Firstly this- as a contrary indicator https://www.conference-board.org/data/bcicountry.cfm?cid=17 The principle is that the more confident consumers are, the more likely the stockmarket is to take a dip. Then there’s this: http://vixcentral.com While there may be smarter people than me. (There are most definitely smarter people than me) Looking at term structure of Vix futures may be helpful in isolation. Traders, I leave you to decide though I was amused at this T shirt logo: There are 2 types of people 1. Those who like to extrapolate from insufficient data!

Our Real Trades

I think it’s worth pointing out that while virtually all our trades are winners and our losers are tiny, there is a reason. The foundation of ALL trading: Exit is everything. We attempt  no fakery here and if trades are managed during the week it’s not always possible to post in real time. We’d charge about £300 a month for that. But then you’d make a fortune.

 

Legacy Trade Number 142

We bought a long put spread. We own the 7400 and have sold the 7300 for a debit of 16.5.  I said I’d try to update this dynamically, during the course of the next week or so. We make adjustments all too infrequently (the irony!) 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.

Here’s what happened:

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.(oh no it isn’t!)

Then this:

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  put spread. 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…

Then this……. Had we held on* we’d be looking at a very very special reward of 100+. A smart trader would have closed out half the winning trade(remember we trade multiple lots-typically 10). Close of play on Friday 176-62.5 =113.5-28=85.5 profit. 10 lots =£8550 while those holding shares are crying! 

*original trade gave a closing profit of 107.5 – (62.5+16.5)= 28.5 nett

Trade143

Safety first-we have a crazy Tweeter ruining/running markets. FTSE=7407 and it is unclear how the markets will react in the next 2 weeks. We take a view that somewhere around 7300/7350 is  possibly support. Safety first means a closed end trade- a butterfly. We buy the (August expiries)7400,@107.5 sell 2x 7300 @62.5×2=125, and buy (for protection) the 7200 @36. Cost, therefore= 18.5 and that is our max risk. Max profit at 7300  100-18.5= 81.5

 

 

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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:

    Meant also to mention this guy:
    Vance Harwood@6_Figure_Invest

    The VIX futures term structure as shown on (link: http://vixcentral.com) vixcentral.com (using the “wide” setting” ) is very flat and closing $VIX value is right on top of it. That’s unusual, typically this close to backwardation $VIX is well above VIX futures prices. Seems that VIX is underreacting.

  2. Terrapin Trader says:

    That butterfly now 29 so if you like a 50% profit,take it! By the way I hope our trusty followesr understood this was a put butterfly. sometimes I miss out the key words just to keep you sharp.
    We win again

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