Trade 171 Week Ending 15 May- Back To ‘New Normal’

That Was The Week- Big one day drop, Down 2.29% on The Week

This trader is tentatively looking at taking new trades back in to our track record. To be honest the trades in our ‘furlough’ have done absolutely monster business. You ask why? Simples really- the prices tell us most of the info we need. When a straddle is trading at historically 2x premiums relative to last few years, it’s expensive. When VIX hits 40, it’s high. However, trade selection is one thing but a well managed exit is 95% of our art. This idiot was virtually ungraded in art at school- I’m an art lover, however. We just need a view of the underlying, and let the options chain speak.You have NO idea how hard it is to find a bad trade with options, given a modicum of knowledge. Shares? Forget it!

Something For The Weekend

I often mention the plethora of emails I receive and some just chime with me- like Larry Macmillan’s https://www.tradingview.com/script/UU9wESK9-McMillan-Volatility-Bands-w-Buy-Sell-Signals-optstrategist/

I tend to take liberties with other people’s work-here’s one I prepared earlier:

A quick glimpse shows an extreme Bollinger Band squeeze just as the market had ‘double topped’. https://uk.investing.com/indices/uk-100-advanced-chart

Have a play with this- and use it dynamically- that squeeze still shows up as a secular event- it still leaps out. There is another but price is at the lower band, and still dropped. Typically we look for a drop when price is at the top band, and vice-versa.It’s more complex than that -Larry explains it better than I. No signal is 100%, of course but it looks handy

 

Legacy Trades

Trade 0.7  

5750 straddle for credit 349 -Closed for credit  60– but then….. Best price to close 220  credit 129 on Wed -Last week. We found it only 85 on Thursday –MONSTER MONSTER MONSTER!

Trade 0.8

Calendar ratio selling 3 May 5000 puts and buying 1 June 5000 put 71.5-(17.5×3). Remember those May puts can only go to zero, but could come back to bite us.   Debit 19  Best ? 30 as previously posted in the comments. Credit 11(too dreary)

Yay! Again- peachy 47.5 on Thursday WINNER

Trade 0.9

One strategy favoured by the co-founder here. We buy a spead and finance it by selling a much further OTM option. The aim is not to lose money, like a free lottery ticket.

Thus we buy the FTSE May put 5850– pay 55, sell the 5750 for 33.5. We now need 22 credit to pay for this- the 5650 strike is trading for 21. That’ll do.

Debit 0.5  Risk at  5550 Max profit 99.5.Traded for 56 on Thursday (124-51.5-16.5=56) WINNER

Trade 171 The New Paradigm

Well, we are ‘dipping toes’ so to speak and want to limit risk, so we go for a closed end strategy, and in the case of a quiet week, the iron butterfly looks ok. We sell the 5800 straddle(putcall) and BUY the outer wings the 5650put and 5950call. Here’s the sum 181.5+188.5=370, minus the cost of the wings 136+104=240. Giving us a credit of 130, and risk of 150*-130=20. We are just looking to take a small chunk out of this. In fact a profit of 20 would be fab.

*risk of the spread between the strikes from 5800

Stay Safe

 

 

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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