Trade 55 This Trade Gives You Wings

 Looks a Bit Dull, This Week’s Trade ….

On the left, the left hand column of the FTSE Nov. options chain. What lives on the left?     CALLS        What ARE those numbers? Left to Right:

Open Interest- – the number of existing positions at that strike e.g. 17828 at 7600

Next column in- last traded volume-irrelevant

Next column in- Closing or settlement prices-these are what we use for consistency.

And the Next column in- time of last trade

Next column in- change of price of last trade  zzzzzzzzzzzz

Next Column in – room temperature -kidding just trying to keep you awake, it’s the last price.

The Next 2 columns- bid/ask is zero and zero as market is closed

Last Column……..  Strikes. 7400 to 7700

Dull?  That was Mind Numbing-Let’s Get Into the Business of Trade 55

We have a number of choices, or options if you like. The premise is this: The market is likely to stay above 7500, but maybe won’t go too crazy. Thus to do this we can buy a call-the 7600 is cheap at 16.5, and there is the greatest open interest there. Are those all long positions? Surely someone has sold all 17828 calls. In itself open interest means little. I used to think it was where most people had sold options, and they are often correct. Make up your own minds there.

Trade 55 Getting To The Point.

You guessed right- a Butterfly. buying the 7500, selling 2x the 7600 and buying one at  7700 (63.5+3.5= 67 minus 2×16.5) = debit 34

FTSE= 7560  Therefore, we are paying almost nothing in time value for the 7500 call. The 7700 is just for insurance. A Butterfly is a long spread and an equal short spread, so no more risk other than the debit paid. Max profit at 7600 =66 (100-34) Not sexy is it?

What Can We Do With Those Prices?

Have a look at a condor, a cheaper variant- 7500,7550,7600,7650. Debit  ( 63.5+7.5) – (34+16.5)= 20.5  Max profit 50-20.5= 29.5.


Filed Under: StrategiesWeekly 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

RSSComments (0)

Trackback URL

Leave a Reply