Trade 75 With Market Moving Events Possible, We Limit Risk

 

Felling Distinctly Uneasy About Global events

Sorry but this is not a well thought out strategy. I have concerns that matters could get ugly very quickly in this coming week. Normally we’d be concerned as it is expiry week and there is PIN risk. This is just so flippant in the context of current affairs. However:

Trade 75 -Limiting Risk and Taking a ‘Punt’

To quote Price Headley- sometimes you make more money sitting on your hands. Times like these we typically stay out of the market. But for educational purposes we’ll buy some options risking only the premium we pay. What do we think the market will do if the news is grim? A drop seems highly likely,so given that scenario we are buying ATM at the money with the 7250 put at a cost of 29. At £290 per lot this is like taking a ‘flyer’ on a cheap car,that you will drive for a few weeks,as it’s cheaper than the rail fares. Would you pay ten times that amount? A gambler might. We don’t gamble,but on occasion we take a limited risk punt. With expiry week it’s not worth using a spread, which limits potential profit and brings in only modest cost saving.                             Example the 7150 is 9.5. So the 7250/7150 spread would cost 19.5,but limit your gains to 100 minus the 19.5 premium paid. Our profit has a maximum potential of  £72,500 (FTSE goes to zero)

Profitting From a Terrible Event

I used to worry about this, and let’s say the market drops 300+, and your £290 stake netts you £3000. Donate half, or all your profits to charity. This kind of trade is outside our parameters, the same as selling naked is taboo.So this should only be entered with the understanding that your £290 is gone.Forgotten unless there is a big move down. We have no control over anything except our trading. Peace.

 

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:

    Well, this puppy closed out for 65 last night (mon 16th)Not it seems because of impending war but because the £ rose against the US$ or some such thing!

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