Trade 172(Yes!) Week Ending 22 May -New Normal/Abnormal

That Was The Week Miracle Covid Cures Came and Went

FTSE Up 3.34% the third highest weekly rise in a year. However- the S&P500  up 32% from the low, FTSE up 24%. So is this some kind of clue as to direction? Well, FTSE has a PER of 13.32 but this does not reflect the massive losses of earnings yet to be recorded. The Federal Reserve seems more kindly disposed towards the stock market as if it’s a barometer of real financial health. America thus may have a different idea of the financial future, but it costs nothing to print dollars. Workers who have lost jobs may not be as supportive of the stock market as leaders assume.

Meanwhile. Some levity using the ludicrous ramblings of a certain person- enjoy! https://twitter.com/sarahcpr

Developing Our Trading- So Many Sources of Education

While on a certain business connecting site I found this profound wisdom from the CFA course objectives:

cfainstitute.org  https://www.cfainstitute.org

Options, like all derivatives, should always be used in connection with a well-defined investment objective. When using options strategies, it is important to have a view on the expected change in implied volatility and the direction of movement of the underlying asset.

I like that they put volatility first, then the expectations of the underlying. We trade our beliefs, remember?

Mentors are many and varied. While some are focussed on the complex maths of further derivatives such as vomma and vanna. We then have a  self proclaimed options geek who, meanwhile, claimed the Greeks don’t matter. Like the apocryphal 4 economists who will give you 7 opinions on the economy, there are no right or wrong answers.Traders learn by education and experience and they are 2 essential elements. Paper traders and retrospective chartists are no help though. We need, to quote Taleb, ‘skin in the game’. Check out https://www.elitetrader.com/et/ for the full gamut of ‘highly professional’ to ‘batshit crazy’! You decide what’s what.

Legacy Trade and The Correct Trade 172

Trade 171 The New Paradigm( Yes I called it Trade 172, call me Homer!)

We sold the 5800 straddle(putcall) and BOUGHT 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. We thus had a credit of 130. Now? 134 to close-we await our hoped for outcome.

Trade 172- 19 Trading Days To Expiry

calendar with a twist

I hope the graphic is easily read. We are selling near month June  5600 put, buying July 5600 put but……. we are also selling the July 5100 put. Debit 113.5-(49+58.5)= 6. Here’s the logic of the trade. Theta is our friend and we have a sizeable chunk of leeway, as the July spread that we own is worth a maximum of 500.

At that point the near month put would be worth 500 but FTSE would have to be around 5100. Which of us thinks that is likely? Bollinger bands show a lower band at around 5450, and our lower limit is some 15% away.

 

 

 

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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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