Trade 162 Post Xmas Week Ending 27December

That Was The Week- Another Bump Up

Fellow traders-is anyone seriously short here? We have now seen 11 consecutive up days. I believe the running count of up/down to be 134 up against 114 down. That, for my money, is a little skewed but with only 2 remaining trading days it’s of little value. The daily count starts with the new year-not helpful either.  (Anyone know of research using different timeframes?)

Readers here may see little bearish news other than the macro picture of central bank QE reaching epic new heights. In itself it is not bearish but effectively they have created a ladder with most of the lower rungs missing. The flight from risk is eventually inevitable, (don’t hold your breath). The safe havens are indigestible with negative rates.

[US history tells us that the president’s 4th year ( yes-2020 IS the 4th year of the term) is typicaly bullish for the US stock market. Read FTSE for that too. Probably. ]

Modern monetary theory, while interesting as a way of delaying the cost of gratification, is of little concern day to day. Fiscal responsibility left the building in the 16th century! Taxation is simply a way of borrowing from the future. However, today’s ‘vanity’ project may not be the panacea for economic woes. Support seems thin for HS2, for example. Support for Brexit? Who knows?

Some Housekeeping, or Gentle Reminders

Sellers of options (writers)  confer the rights of those options to the buyers. Thus when you sell a call you lose the right to ‘call’ the stock. The stock, however, can get called away from you anytime. Example- Stock ABC trades at $100. You sell a call at $105 strike, and collect $1. ABC stock goes to $110. You now have to provide the stock for sale at $105. However as the stock is now $110 you have to pay up and sell it at $105. No wonder it’s called being exercised! Should that stock stay below $106, you break even. (You took in $1 -remember? That’s yours, always)

Stocks/ share options  are traded ‘American style’ which means you risk early exercise and you can get royally caught. Many traders do covered calls ( buy writes). These traders ‘like’ and have already bought the stock.  But, using so much cash, that’s a heavy goods vehicle on a motorway. Traders may be far better off choosing a lighter vehicle. We prefer using tried and tested options strategies. We love indexes- with liquidity, tight prices, and …….. European style exercise. Our index options are only exercised at expiry. And …….cash settled. Every third Friday of the month.

Trade 161 Our Only Legacy Trade

Our calendar spread cost us 7.5 and we were left with a long 7100 Jan Put. Last week I said the following:

We could sell 2×7000 puts at 6×2=12. Thus we’d now have a credit of 4! We could have a butterfly 7200/7150/7100, giving a free trade. So we sell the two 7150 puts and buy the 7200 put.(9.5×2)-11= 8

Currently even an alien invasion would not stop this market! So any of these would be fine.

Trade 162 When is a Jade Lizard* The Right Trade?

Short 7700/7750 call spread 36.5 and 20= 16.5, short 7550 put for 33. Giving us a total credit of 49.5. Thus our max risk to the upside only 0.5. The spread can only go against us for maximum of 50. And our risk below is at 7500.5. ( 7550 strike minus the 49.5 credit we took in).These are placed when you think the market is moderately bullish/neutral with small downside. Big premium and we may have to manage this, possibly at 50% profit.

* A combination of a short call spread and short put,whereby premium=upside risk in a bull market.

A gentle nod to Tasty Trade’s  Jenny and Liz- it’s their trade concept, not ours https://www.tastytrade.com/tt/learn/jade-lizard

 

 

Filed Under: FeaturedInformativeLearnStrategiesWeekly Trade Idea

Tags:

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

RSSComments (0)

Trackback URL

Leave a Reply