risk profile courtesy of http://www.optionstradingiq.com
Seeking Profit and a Little Adventure
Followers of Tasty Trade may know Liz and Jenny: https://www.dough.com/blog/jade-lizard-big-lizard who take the credit for the Jade and Big Lizards. Personally I think this is scary as hell, but the risk to the upside is zero. So…… what’s the deal? We trade only FTSE, so we have the following prices: April expiry 7250 put for 31, 7450call for 51.5 and the 7500 call for 32.5. We are selling the call spread, and the naked put.Thus we have 51.5-32.5=19, plus the premium of 31 from the put, gives us a credit of 50. The width of the call spread is……50.
No risk To The Upside
Music to my ears! The premium of 50 taken in,equates to the value of the call spread should it go ITM-ie FTSE >7500 at expiry. What about the downside, you ask? Well the strike is 7250, we have taken in 50, so we lose money below 7200. The above graphic shows the risk profile and is very useful as it compares to an Iron Condor.
Why Take this Trade?
A number of reasons. 1. I don’t think it’s a good fit for low vol FTSE. I may have been wrong from time to time(surely not?). 2. The markets may continue in the same sclerotic vein for a long time yet. 3.Risk to the upside is negated(nice!). If you are really right and FTSE expires below 7450 but above 7250 you keep 50. Chart analysts will have a view on this. I see 7300 as support certainly. I’m actually talking myself into this trade! I might also look at some kind of put protection. I’d maybe look at a put ratio spread to widen my risk further.(7200 long, short 7100 or 7050)
What if you ‘Legged’ In?
You could use intra day moves and limit orders to get better prices-just sayin’