Trade 71 Xmas Festivities? – It’s The snow

Something a Bit Left Field But Not Too Crazy

We always want to educate and entertain- in that order. So this week’s offering is something a little unusual in the size of the legs,and this trade has 4 legs. Sounds like a bit of a Frankenstein but it can be called a Christmas tree,as pictorially it could be represented thus. I visualise the options chain in that way, but then my art skills border on the catastrophic. We have done this trade before but this is a spiced up version, just to make your head spin a little.

The Bull Market Resumes, the Bear is Just Around The Corner- But Which corner?

For better or worse I’m sticking my neck out here and going with a trade based on the runes/chicken bones/entrails of a sheep and my limited technical analysis. The 200 ema is around 7388, so I see this as the next point of resistance. Am I bullish? Well sort of, yes and no. I just see a resilient market  like Teflon. Thus we want an expiry around 7300-7400.Risk? er, 7460-ish probably!

Here’s The Nuts and Bolts of The Trade

We are using the April call series as follows: long (buying) 1×7300, 5×7500s. We are selling 3×7400, and 5×7550s. The overall picture gives us a tiny credit of 2. Thus if the market closes below 7300, we keep our credit of 2. Our overall delta is short 0.06-translates to 60p per point against us as the FTSE moves. Theta is however 1.8– meaning we are making money by time decay (Cannot quantify this in real terms but you could say £1.80 per day for the sake of argument) Tasty Trade express theta as dollars per day. I have simplified this in the extreme just using the 2 metrics,and we will watch as the market ebbs, flows, gyrates and generally does something akin to a hissy teenager!

April Calls- The prices andGreeks can thus be calculated according to the lots bought and sold

 

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:

    This trade does of course require some margin- we are buying 6 calls and selling 8

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