Trade 62 Low Cost Low Probability, But……….

Playing Not To Lose

I read a book some years ago with the above title. No! NOT Trade 62! It interests me that this remit of not losing should be such a common method.Winning requires greater risk than not losing. We know there are times, however, when the trade risk does not make sense. When an exogenous, or ‘outside’ event can move the market. I ask. Are we in such a time?

Rumours of the Death of Volatility May be Greatly Exaggerated

In 2017 we had only 9 down days of >1%. We had no real clusters of down days either. Very far from normality. We’re enduring this new paradigm, but are we on the brink of a drop? We’re told the Global economy is peachy, the loonies in charge of the nukes are kept from doing real harm by smart people/systems. We say nothing can derail the bull market that has raged since March 2009. Nothing could derail the booming bull market in 2007 either. But we all knew the feeding frenzy of liar loans were festering under the guise of AAA rated bundles. We no longer know what the heck is out there. We, however, can speculate at tiny cost, and modest risk.

Trade62 Positioned For That Event

Fellow traders, we’re deprived of big down days-let’s aim for something more modest. A 3% drop in 2 weeks. Might not happen, (shouldn’t happen). We don’t mind,therefore,  as the rewards are big. The Trade:

Put Ratio Spread

Buy FTSE  Jan 7600 put(11.5) Sell 2xJan 7500 put(5.5) thus 11.5 -(5.5×2)= 0.5. A debit of a fiver(£5) Could thus net us up to £1,000. (Margin required,of course as we are ‘naked’ one put) What are the odds of doing these 12 times a year and one or two making serious dough? By the way this should NEVER be a debit trade in normal times.

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

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  1. Terrapin Trader says:

    I’d like to say just buy the bloody market and be done-because it has really taken the wind out of our sails this last year. The few opportunities there were,(2) I missed, being such a rubbish trader. A few good trades mitigated this but I am on track to have my worst year since 2010, probably- unless FTSE expires at 7700 for Jan.

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