Trade 78, A Faint Whiff of Desperation

When No Trade IS a Postion

Last week was a nothing, insufficient moves to make volatility do anything helpful for us. Our current Trade 77 (we were buying the 7450 call and 2 of the 7650calls, whilst selling 3 of the 7550 calls). Cost us 2 and is currently worth zero. Close out? We still have 9 trading days,and it’s churlish(good word) to expect every trade to win inside a few days. Options trades, like proper cricket, takes much longer than most people know. So what are we to do when the market drifts? One choice would be Trade78: look at your outgoings. Could you pay less for your gas and electricity( I just did) could you getter cheaper insurance for your home and car- again…you get the picture. Step back take a few breaths and optimise what you already have. Or this……

Trade 78

I mentioned in the wekly catch up that FTSE may be forming the right shoulder of H&S. By now you all clicked on the link to Mr. Murphy’s site, I’m sure. This is when price reaches a level of exhaustion– a sort of ‘been here before and it didn’t go that well’ moment. We are trying to predict the market,but in a way we are just being good Boy(or non gender-specific) Scouts. ‘Be Prepared’ as the motto says. Let’s dig in. Put prices, you recall, are the third figure in from the right

June options chain

 

The market may be drawn to 7200-7300 area, we think- you may differ of course. Let’s say I want to be long some puts there by buying a spread –long at 7300 short at 7200. that will cost me (36-25)= 11. But I’m cheap. Let’s sell a 7000 put,the market doesn’t want to go that low,surely? That brings us 14,so an overall credit of(14-11)= 3. Risk is at 6900, we get rich at 7200, anything above that gets us nothing but we keep the premium collected. That’s a sandwich trade-it makes enough to buy a sandwich!

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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