Trade 189 Week Ending 18 Sept Options Expire

A weekly educational and sometimes fun look at options trading in its simplest form. We don’t say “here’s what to do”, we say “watch and learn”. Oh, and enjoy the journey.

FTSE Compared to VIX (proxy for the overall options market)

https://www.google.co.uk/finance?source=lnms&sa=X&ved=2ahUKEwi34NTHhvXrAhUAQhUIHWXpCP8Q_AUoAXoECBoQAw&biw=1679&bih=960

That Was Options Expiry Week But No Surprises

While the market has gone nowhere- even unto the much vaunted 45DTE*  is this storing up trouble? A one sigma strangle would have been fine- an index tracker, not so much! Volumes have dwindled and while that is typical of Summer trading it may well be of some concern. Bank of England kept rates at 0.10% and there are so many mixed messages re the economy. The keen eyed among you may be seeing a ‘head and shoulders’ pattern in FTSE.  Gun to head time, it looks to me like we have topped out and while 6000 holds as support, we may not see too much upside. Sterling is the rogue element and if confidence in the £ and once esteemed law abiding UK dwindles, there may be further falls. Cheery isn’t it? Of course a drop in sterling can boost FTSE 

*04 August 45 days to expiry, Tasty Trade’s favoured trade entry.

Distraction Trades- A Stuck Record

Discretionary trading owes little to any fundamentals or complex charting. I am using a very simple MA cross, but this week produced 3 good trades and a lot of obfuscation. No clear entry signals, missing 2 good moves. DAX remains the weapon of choice as it seems to offer  moves of 100+ when you’re on the right side of it. Still early days and have yet to quantify. Assuming one wins 100, but loses 30 we need a better than 25% success rate. Too good to be true? Probably! Stay tuned- and fans of drying paint will love EURUSD

I have been using the excellent charting on https://www.cmcmarkets.com/en-gb/

Those Legacy Trades 

We had closed out, prior to expiry, the previous trades, though the iron condor was profitable even further. Reasons to keep it running when premium hit 2 to close on each side? Risk remained the same but reward was not worth it. I KNOW!

Weekend strangler (Remember these close out on Monday)

Last week we had C6250 and P5700 for credit 114 and it dropped to 95, so an annoying win! You made 19  

Let’s just get reckless and naked again.  5750  put 51   6175 call 53 = 104

Trade 188 used the same strikes but we sold the call and bought the put for credit 1

Now….. the call is 32.5 and the put 43 a modest 10.5 profit. Shall we run it some more? Why not.

Trade 189 Fishing in The Murky Waters

A trawl through and a five week month can we capitalise on some inertia? The metrics we like in our favour, such as vega and theta are not often happy bedfellows. Risk will never be totally quantifiable but can be managed. In this example it’s based on price and an opportunity to use a 5 week expiry. However there was a well know hedge fund manager who blew up using the 3 to 1 ratio, but…………… in the same expiry cycle.

 

Crazy time?
Selling 3 near mont buying one 1 far month. Yikes!

Hope fully the graphic is clear enough. We are selling 3 Oct 6200 calls at 45.5, buying 1 Nov 6200 call at 114.5

On the surface it looks like a bit of a suicide run as our exposure is quite large, but we’re looking for a quick turn around, based on theta  5.2755 -1.4633  -you do the math, it’s a lot of theta, vega is not too awful. The trade may go horribly wrong and then we will look at adjustment, in the calm light of day. Panic is an option but as this is only a demo trade we will observe calmly.

Did you think that was it?

Let’s get even more fun by creating Delta neutrality, by selling a 5700 put for 43 and buying a 6250 call for 32.5. (Overall credit of 30 something)

Enjoy

those option Greeks
Not 100% perfect delta neutral but good enough

Here’s the risk curve that says we need at least  2 weeks( the blue line)  to make serious coin.

https://optioncreator.com

Is this reality
Risk curve but is it worth much?

 

 

2 Comments

  1. Yowser!!!! Did not see such a drop coming and this has spanked trade 189 in its full delta neutral state. Should have stuck with plan A the 3 to 1 ratio. However one day’s drop doesn’t make a catastrophe.
    The weekend strangler?….. Said they’d go belly up sooner or later, and such a strategy opening the trade before the weekend means sitting on a lot of discomfort as in the long run it looks like they might break even or at worst lose money hand over fist. FTSE has been kind in the last month or so. There may be much more pain to come. Stay safe people.

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