Trade 147 Week Ending 30August The PM’s Lost It! Panic some more

that Bollinger Band width-useful?

Bollinger Band width

That Was The Week

Well, we saw panic as GBPUSD dropped 1% thanks to Bojo, then recovered to its previous level at 1.22. Curiously FTSE took a dive at the same time but then recovered, as everyone looked up from their screens and decided it’s political nonsense. I took a view that perhaps the PM had gone bonkers and prematurely closed out(Wednesday) a winning trade for 40% less than it made on Friday. Though, as a friend and trader says ” A profit is a profit”. Thus after all these years I still ignore my own knowledge and other people’s wisdom.

Politics no longer remains in the dim distance as the spectre of tariffs again rears its ugly head. Thus, next week may see another round of Washington v Beijing.

The Charts, The Charts! It’s All In The Charts

So, out of curiousity we can see the Bollinger Band width for VIX and FTSE– both dropping to old lows. A reflection of volatility contracting- for now. Wiser traders may say it’s a coiled spring, but also it sems late to the party. We each need to carve our own swathe through the TA jungle. Check out https://school.stockcharts.com/doku.php

A Little Refresher and Options for Income- For New Readers

Last week we suggested options are very much like insurance premiums, but with time decay. With FTSE closing at 7200 and change we might not know precisely where it will be at expiry on 20th Sept. However, if we suggested it might NOT be at 6800 or 7600 we can sell at both those levels. But…this is the clever part- we can buy insurance either side of those levels. We could sell the 7600 call and buy a 7650 call.(A spread). By so doing we lock in a safety element. The value of that spread even with FTSE at ∞ or beyond will still be 7650-7600= 50. Remember we will have taken in premium, generally with puts and calls.

Thus we can be horribly wrong and lose a modest amount. We can be right 10 months of the year and take in a credit of 20. We can mitigate losses or take the 30(50-20) hit. Do the math(s). You make 40% a month, then lose 60% x2.

Sounds peachy- but you can backtest this simple strategy known as an iron condor. Simply look at where FTSE is on the 3rd Friday each month and backtrack about 40 days to find the entry point. Forget option prices just check what the index did in that time. Mostly it goes nowhere.

Those Legacy Trades

Trade144

our Sept Iron Condor- selling a put spread and a call spread:

short 7000 put long 6950 put for credit 71-60.5= 10.5

short 7450 call long 7500 call for credit 35.5-25=10.5.

Total credit 21, max risk 50-21 =29.Risk at 6979 and 7471.

Became  13 and 5.5 =18.5 first week, last week 12.5 and 3= 15.5, now 8.5 and 3.5= 12

You could add another say 6900/6850 put spread for 9.5 and 7350/7400 call spread for 10.5 =20. (Now 9 and 8=17) this week 5.5 and 11= 16.5 ( Remember these run ideally to expiry to avoid commissions when both sides go to zero)

Trade145 

Theta lovers-one for you! A ratio calendar but as we need to keeping things simple we stuck with puts.Thus we BUY the Oct 6600 put and SELL two of the Sept 6550 puts. Prices 1×62.5, 2x 31= 0.5 Debit. Last week 1.5 credit                                       Now34.5-(8×2)=18.5  You could close this out as a very nice win. We paid 0.5 and now it’s 18.5….. peachy

For fun…..Calls 7350(Oct)  64.5  (Sept)33×2. Credit 1.5. Now 17.5 credit. And I scoffed! This week 66.5 -(24.5×2) =17.5 Come on, we’d have closed this out too. Peachy  

TRADE 146- Safety First 

A closed ended strategy for safety and maybe unattractive returns but times dictate. There may be trouble ahead.

It’s another Cadillac trade- the ones that give your broker a nice chunk of comms.

Put Butterfly buy (Sept) 7000( 86)/ sell 6900(63×2) / buy 6800(46.5).   86+46.5 – (63×2) =6.5 Debit

Risk? – just the premium paid, 6.5 max reward 93.5 ………we’d take 25.This week? Worth 5.5 we need to be patient of course.

Trade 147 I’ve Been Spooked and Calmed- What To Do?

We serve not only to educate but to encourage, with a whole stack of winners that frankly anyone with half a brain could make money with. Trade selection requires no genius- exit however is the business end. Volatility has dropped a whole chunk, I’d be looking at ….. buying the 7200 put, selling the 7100 put giving us a long put spread costing 105-68.5 =36.5. That is a chunk of change so let’s part finance this by selling (ideally we’d wait for better premium)the 6900 put for 30.

Logic of the trade- risk at 6800,max profit 100-6.5= 93.5 Should FTSE stay above these levels we might  lose our entire 6.5. Could be worse,and we can close out any time.

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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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