Trade 53 Armageddon Notwithstanding, and a Triple Twist


Everybody loves a disaster

People like a scare-so long as it is controlled and someone else’s problem. That may be too harsh an indictment of humanity. I apologise for using such vulgarity to illustrate a point. It seems to me there is always a ghoulish side to us, and the news media panders to this. Trade 53 is an anti armageddon trade!

 

Trade 52- A Lot To take In.

Cutting To The Chase- It’s a 3×1 Ratio Spread

We are selling 1x FTSE Nov 7500 call and buying 3x 7600 calls, this is a recognised trade.

Firstly it’s important to know where the risk is at expiry. Below 7500 we only lose the premium paid=5. At 7600 we lose 100, at 7635 we start to make money. That may remain academic. We are seriously not running this puppy to expiry! But here’s the Greeks (overall position):

Delta= 0.2586 Gamma= 46 Theta=1.5367 Vega= 12.7091.(Remember we multiply by 3 for the 7600 calls)

The position thus benefits from a rise, as delta and gamma are in our favour. It also gains from a nudge up in volatility, but loses daily and unavoidably due to theta. This is not a trade to hold to expiry, please note.

So What’s The Thinking With This Trade?

I may have lost the plot but this is also new territory for me. This is a fun trade that could gain in the first 5 minutes of Monday’s open,either from a drop or a rise. Our worst case scenario is for the market to do exactly what it has been doing. Grinding slowly and laboriously upwards. 27 days remain for us to adopt adapt or improve!

Are Calls Worth It?

I think it’s a given that people buy calls as they are cheap relative to puts. The Jade Lizard uses the idea that the volatility ‘smile’ is almost flat with calls. We buy cheap.

Filed Under: InformativeStrategiesWeekly 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:

    The F has gone absolutely nowhere for well over a month now-this is like nothing I have seen -but perhaps my memory fails me. Stand by for some earth shattering event-something has to give….or does it?

  2. Terrapin Trader says:

    Earlier today- the trade hit 12 (30, and 14×3) as vol picked up a bit-we can book this as a winner methinks-sorry I missed a chance to screenshot

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