Trade 153 Week Ending 18 October, More Brexit.

The Week of Utter Bewilderment- again

There are no words, it’s politics of the lowest calibre. Let’s stick with our trading. FTSE did have a blip up to save our trade 150, and then a trip down. However, 151 and it’s sister 152 did fabulous business.I had a disappointing quick put spread that did zip. Here’s some fun, by way of market manipulation https://www.marketwatch.com/story/hanky-panky-traders-pocket-stunning-profits-after-trumps-comments-on-trade-talks-goose-the-stock-market-2019-10-17?mod=home-page

Again, we would not be badly damaged by such actions but anyone with a futures position pointing the wrong way would have been smashed to bits. Taking $1.5bn out of the market must have hurt a lot of people. Traders like us want to make a living not a killing. We don’t like to profit from misery, so our strategies often give the other guy a good shot at a profit too. It’s not a zero sum game, the trader buying our sold options may use those to close out add to or adjust another position.

The ‘V’ Word- where the heck?

It seems volatility is not reflecting the peculiar times, so it may be prudent to avoid selling a lot of premium. VIX is around 14 and around the lowest percentile. We naturally assume volatility will strike higher but there is no particular reason for that. However we just need to be aware that any short premium could go badly against us very quickly. This is why we always trade strategies.

Meanwhile….Those Legacy Trades – 3 wins and some procrastination to add to the mix.

Trade150

That Oct/Nov ratio calendar with 7250 puts .

We sold 2xOct expiry and bought 1xNov (88-(34.5×2) )= 19 Debit. I had commented during the week after the calamitous drop. However, it is now in credit 134.5- (60×2)= 14.5, so a small loss of 4.5 as we paid 19. Close out? What if we’d adjusted during the week?

Panic? Nope– This trade on Tuesday made 26. Choose your exits and keep your profits.

OK……. panic? Vol was ‘uge so here’s what I could have done.

I’d  have bought back the Oct puts (134.5×2) I’d have sold the Nov 7150 puts (152.5 x2).  Thus we have a credit of 36, but we paid 19 remember? So now our credit is reduced to 17. How did this trade do? (94.5 x2)- 134.5. Hmm ugly but with a lot of time to run.

How if we convert this into a butterfly? We would need to buy the 7050 put, right? And that costs 65.5. But,you could sell 2 of the 6800 puts for (26×2)= 52. We’d now have a tiny credit (17-13.5)=3.5, a huge butterfly, and risk down at 6800

 

How did the adjustment do? Butterfly is of course 7250/7150/7050(160,106.5×2,69.5)=229.5-213=16.5We are short some 6800 puts though….. 24×2= 48. We’d be underwater for 28, remember we have a credit of 3.5 from the adjustment, hence 48 – (16.5+3.5)=28debit. The moral,however, is to be patient and let the exit come to you. This trade may do brilliantly yet- we’ll run it.

Here’s Expiry:

Hope you can see from the chart that expiry was in the box-above 7150. Perfect for our iron condors

Trade151

We think volatility is still fairly high we should sell premium but limit our risk. Hence  our iron condor, October expiry, as follows: sell 7300 call, buy 7350call (25-15) =10  Sell 7000put buy 6950 put (43-33)=10. Credit 20

Thus the logic of the trade- limited risk with break even at 7320 and 6980, max profit 20, max loss (50-20)=30 

100% WIN!

Trade152

Double up on 151- say whaaaaat?

Some time ago there was a very smart iron condor trader who said “just add another iron condor when the market moves”. OK? Well he’s made his wedge but does this still hold good today? Imagine the trade is like a bridge over the index( river) where neither end of the bridge is touched by the market(river). We can juice up the put side here and sell the 7150/7100 spread(27.5-16.5) =11. Sell also the 7350/7400 call spread (11.5-4)= 7.5. 

The original trade

We took in 20, we now have another 18.5. What could go wrong? Well, Huston, we have a problem at 7338,and 7112. This is starting to look a little crazy for my liking, but let’s put it in the mix.

100% WIN!

We Are Now in November Expiry Cycle

For fun we can run the Trade150  ill made adjustment, and introduce…

TRADE153 4 Weeks to Expiry

Long put spread 7000/6900 ( 56-36.5)= 19.5 We bought the 7000 put and sold the 6900. That’s a bit pricey you say-ok so let’s be a little cheeky and sell a 6750 put for 20. We now have no cost- a tiny credit of a halfpenny, but we are short at 6750 though we own the spread far above it. So, for that level to be hit, we’d have 100 in the bank(7000-6900)

Where’s our risk now? 100 below 6750. At 6650.

You could argue it’s trading not to lose. I’d say that is true, but it could be a very good trade with max profit potential 100, for a cost of very little- the margin on the short 6750- possibly around £1500 per lot.

 

 

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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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