Trade 157 Week Ending15 November

That Was The Week When Nothing Happened

Market watchers lament the death of volatility, and note the going-nowhereness of the UK market. However we see new highs in the US. Curiously our winning trades needed the drop.This was delivered, predicated on a strong pound/totally random unconnected events. Crazy times as we know a 100 point drop will be bought. What is weird is the assertion that buying at new highs is a profitable strategy. This trader read an interesting article that seems to fly in the face of our experience. And yet…….

 

All Time Highs

On a monthly basis you’d just go long and never mind the dips. We seem to have had a rather substantial bull market. New participants and probably algo’s, don’t know a bear market. Inflows to ETFs have been in the trillions.  https://www.cnbc.com/2019/11/09/etf-assets-rise-to-a-record-4-trillion-and-its-still-early-days.html

Yet bear markets are normal. Evidently these  people don’t think so -but given negative interest rates and negative bond yields risk on is the only game in town. Perhaps we are in a new paradigm.Perhaps this time it’s different……..

Legacy Trades And Another Bundle(?) of Wins

Trade155

7150 put calendar spread with a short We sell the Nov put and buy the Dec put 

We also sold 6950 Dec put for 41.5.

Our debit then 81.5-(24+41.5)=16. Max profit 7150-6950 put =200 after expiry!

Last week’s  prices : 4.5 for Nov short put, 51.5 and 24.5 now 51.5-29=22.5, we paid 16 for this. 

Now Nov  7150 put is 0 Dec 7150 is 55.5, the 6950 25.5. We make (30-16) = 14.

However, the trick with a calendar is deciding when to exit. This could make £££ more, but we can comfortably book a win. But hey….you could get an almost free butterfly 7150/6950/6750, by selling the 6950/6750 spread for 12.5. (OK it costs 3.5)

Let’s run with it.For fun.

Trade156 It’s December Trading Already?

We had a short call spread  long 7400 at 14 and short  7350 call at 34.5. We were  long 7300 put at  21. I reckoned this was an ugly trade as it only has one proposition -it makes big ££££ if the market drops. I said it could lose 50-or we could get creative with adjustment. We could adjust ‘on the fly’ too. No expectations just a ‘hail Mary’

BOOM!!!!

Traders, do I have to spell it out? The 7350/7400 short call spread is here worth 2.5-6 (about 4) the 7300 put is worth 61-64. So…yes it could have made around 60.

Trade 157- Now We are Reminded of Seasonality by TV Advertising

December- the Santa Rally -can we use that? Here’s the crazy- the  7500 call …….open interest(OI) is >30,000. Over 26,000 at 7600.We understand that at these strikes there are mountains of live options. Opened on the expectation of a rise, a drop, or a rise but not to that level. I think it is not easy to make sense of OI because options traders do not make naked trades. That is the domain of those trading other people’s money.

Boris may win, market goes up, or he may lose, pound drops market goes up. We need to get long but cautiously, so let’s buy something and sell something else. We will have long 7450 call 32.5, and sell 7550 call 12.5 and… sell a 6700 put 11 effectively the reverse of last week’s trade. Our debit here: 32.5-(12.5+11)= 9. We have no upside risk only max profit 100. Downside we are short >8% below today’s level

But Finally…

Couldn’t resist this warning from a trading site:

 

To which we say- learn, repeat learn options trading and be profitable.

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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:

    Well- you could knock me down with a feather. Trade 157 SMASHED IT!!!!!
    We paid 9 -remember?
    We close out for 7450 call= 61, 7550call= 26, 6700 put= 7 Giving us 28- or 200%.
    But we know better than to boast about our wins. This is about a modest trade, and the market giving us a peachy exit. Did we know the FTSE was going to have such a day? Of course not-we have no expectations we just like the odds in our favour, our costs low, and our risk super manageable. This trade needed some margin so the 200% is kind of academic-but be honest what else would you be doing with your cash? We like these little sniper sytle trades and we must always be ready to take a profit. FTSE smashed down too, after smashing up. Perhaps we can get some volatility when we’d most like it.

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