Trade 63- Paying up When the Market Dictates

Let’s Jump Straight In With Trade 63

Without too much ceremony it’s been a grim year for traders. A great year for passive investors. FTSE up nearly 7%,with barely a bump in the road. The number of 1% down days was the lowest since 1379 (kidding!). It was stupid low. So how are we to manage this? We cannot bring ourselves to sell premium with volatility so low, so we have to look at debit trades. “Pay up and look big” to quote one of my old brokers.

Trade 63 -A Debit

We choose a call ratio spread but unlike Trade 62,we opt for a 100 point spread instead of 50. Trade 62 captured at best 22 in profits,though it was a credit trade. We’d like a bigger bang for our buck-remember we are naked some of the trade so margin is required. We are long the 7650 call for Feb and short 2x the 7750 call -again for Feb expiry. Risk at 7850,and we lose money below 7611-but it’s never that simple, as we can adjust any time. Cost of the trade is modest: we pay 105 minus 2×47=11.

Logic of the Trade?

It looks like we may hang around here (7700-7800 ) but of course I maybe wrong. However theta is good for this trade, gamma maybe not so much-but we are in that ballpark. Big deltas big Vega too. It might give us a few kittens along the way. This, is trading, not some dreary index tracker.Ups and downs are part of the programme.

Calculator again, as always, courtesy of CBOE ( we like CBOE) and iVolatility.com -also much liked.

Our Ethos

We continue to show you real world real price trades. Watch us put our head in the Lion’s mouth so you can see what really happens in the options world. We love trading, profits are always nice too. Above all ENJOY!

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:

    So! The 7750s are38 and the 7650 is 94-remember we sold 2 of the 7750s for every one of the7650s we own,so it’s 94-76=18. Our cost was 11-so we make 7-a 64% profit in 2 days. We can hold on for much bigger profits but a cautious trader might close out and take some money off the table by trading multiple lots.
    We therefore book our first trade of 2018 as a clear winner.
    Welcome to our options world-how’s your tracker fund doing?

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