Trade 159 Week Ending 29November

That Was The Week- Ups and Downs

We gloss over the sad events in the news and focus on the finances. Politicians in the lamest ever assembly of lame duck politicians in a one legged race, will note the market trundles on regardless. I highlighted a while ago the massive open interest at 7500 calls. That still holds. Trader may thus  take it as a ‘region of interest’. It just means those shorters and longers(?) think this is the place to be. Santa’s health may yet be determined by the Black Friday shenanigans.  So, are we in for a record Xmas buying frenzy?  Which seller has this year’s ‘must have’, and who has massively overstocked?

Retail is not a bad barometer-though we abhor the term ‘consumer confidence’. English language can be so easily abused, and this is, for me, a classic. It’s just spending.  Psycho babblers seem here, to have no view whatsoever. Market pundits love a bit of terminology, and when you’re paid by the word…….. For the record I am supremely confident when making my purchases- both beer and petrol.

Indications Of Impending Doom

Traders like us are well advised to exercise restraint in reading the financial media. Institutions who would sell us stuff are hugely bullish on FTSE– it’s undervalued by 14% they bleat. China is on the verge of a meltdown– yet again, they warn in chilling tones. Banks are teetering, output slowing. Revered options warhorse Larry McMillan tells us this:

No panic then. I’m certainly not confident using put/call ratios in this way however. Options only exist when someone sells, someone buys. Looking at a more generalised picture, I feebly cobbled this together. (Weekly VIX on top of FTSE) Good innit!


Technical analysts may note the lack of technical indicators. I believe the chart speaks for itself. I see a mirror image, which is lovely in retrospect but is it helpful?

The Last Trade- No Legacy Trades Running


So, the obvious trade the long 7450 /7550 call spread (37.5-14)=23.5  financed by the sale of 6950 put(23). Tiny debit 0.5

Closed for credit 25-see below

Safety traders: Call butterfly 7350/7450/7550 81.5 (37.5×2) 14= Debit 20.5. Would you sell a put to finance it?

Still only 22 -that is the nature of Butterflies, they need to run to expiry.

Terrapin Trader says:

It’s 25 now but that butterfly? 22 but if you’d sold a deep OTM put to part finance it, then it would have been an ok trade too. My own approach is basically never pay a lot for anything -options should be like  LIDL!

Trade 159 Beating The Xmas Rush

That 7500 level is bugging me. What does it mean? We seek exposure but wish to limit risk. Christmas comes but once a year but lately we’ve had  Xmas every trade! We don’t like to lose we don’t like to spend. You’re 100% on board now, right? We have some strikes and some prices for December:

7450 call 46, 7500 call 29 7550 call 17 7600 call 9 7650 call 4.5

How if I said long,short,short, long, short short? What I mean is buy 7450, sell 7500, sell 7550, buy 7600 sell 2×7650.

We have an Xmas tree- or a Condor topped off with a ratio spread for the wing.                                                                           Our prices: 46-(29+17)=0, then 9-(4.5×2)=0 or…… 0! We make money from the long 7450 all the way up to 7549. Risk is capped at 7650 -thereafter we’d be doing some adjustment. Remember with positive theta we could be closing this out profitably before expiry. Margin required. NO Downside risk

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

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