Trade 18- What’s in The Locker?

My Greatest Test Yet 

My Own Trade- a 7100/6900  put ratio spread. Which I placed on Friday and the prices here are an average as I did the trade in two tranches. I thought it was good value at 5.5, then I saw it was even better value at 3.5. So I paid twice,averaging at 4.5. Warning: I do NOT like to pay for trades.

 

So, Maestro, What’s The Score?

Buy the 7100 March put once , sell the 6900 March put twice.                [ The Greeks: Delta 0.338, Gamma 2 Theta 0.4623 Vega 0.6 (against me).]

I’d like to say this is  genius. I’d like to be an astronaut, but that isn’t going to happen either. So….. to explain. I thought the prices looked good and I tend to trust my gut as I’m so used to seeing option prices. What can I lose here if I’m wrong? Well if the market keeps going up(ugh!) I’d lose my 4.5. Market goes down-now it gets really really interesting- I could collect, in theory up to 200 if FTSE settles at 6900 at expiry. Below 6700(8%drop) I start to lose money, and I’d need to adjust my short positions. However, in profit,  I’d probably close out ‘some ‘of this if it hit 40. Just so you know-this is a bit of a long shot as the reward is £2,000 max for a risk of £45. We’d like 4 of these a year. I reckon they happen once or twice a year. We need a 5% drop, in this ‘Goldielocks’ economy. That’s how it looked in 2007. Even a 3% drop would serve very nicely, and at these prices I can do this every month for a very very long time. Or I could just surrender and go long! The market will decide who’s right. I wonder who else is making these types of trades right now……

 

Filed Under: Weekly 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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  1. Terrapin Trader says:

    I think my trade is now worth 2. I may be going nuts* but I don’t think a 200point wide put ratio spread would ever be so cheap -last time I found a super cheap trade it was 11 for the first tranche then zero-turned out to be a monster winner which I closed prematurely missing out on that Aston Martin. But hey I sleep well and I’d be worried about parking it out and about
    * Looking ahead there are some silly prices in my humble opinion-this market cannot stay aloft forever

  2. Terrapin Trader says:

    this trade peaked at about 9 today but it’s not a done deal until the cash is in the account. I’m hanging on and looking for more of these trades at very low cost, with low risk high reward potential- with so many fruit loops in international politics from North Korea to Iran to the US to France, anything could give the market the excuse to close up shop and leave all the dumb money to fend for itself -people like to cut losses when their shares plummet to round prices or levels. We still have 3 weeks to expiry-that’s a long time in politics. Curious how deperate the market seems to stay aloft when it has failed repeatedly at 7300

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