Trade 79 Never be Afraid to Experiment, or Test The Water

Trade 79, Confidence Took A Hit, But We Persist

Here’s a ‘cheap’ straddle- with volatility so low this trade costs money but it may be worth it. Straddle!  7725 call at  79.5 and 100.5 for the put. We buy both for a total 180. While this is not my favourite it is worth showing it  here, as these can trade at 300 with one month to go to expiry. Other reasons- VFTSE=11.59 but curiously despite the huge move up, it has not diminished. I therefore suspect that we are not done with higher vol. I like the VIX though as the overall guide:

 

One of the metrics I really like is RSI- relative strength(top of the chart) It is showing a new low and the index testing the lower Bollinger Band (red line at 12.65). As you can see it tends to bounce off the lower band.

Trade 77- Uglier Than England’s Football world Cup Chances

Remember this? buy one at 7450 sell 3(that’s three) at 7550 and buy 2 at 7650. Thus we have a mutant ‘fly or a combination of a call ratio spread and a short call spread. Thus you could leg in with a butterfly, then sell the 7550/7650 call spread. This has now gone bad and the prices for that extra spread are 176- 86= 90. Loss!

What’s to do? Roll that short spread into a naked June 7700 call for 93, or 2x 7800calls for 48×2=96, if we think the market may drop soon. While I hate naked trades, we could look at making some adjustments such as buying a cheaper protective spread, at some point. We can of course roll up and out into each month until we get a drop. What happens if we don’t? I have survived being short calls for many months. Rolling deprives you of other trading opportunities but it can save a lot of cash.

When We Are Wrong

We can usually adjust when we are on the wrong side of a trade. The way to do this? Have a cup of tea, sit down and look at the options chain. For next month and maybe the following few months. You may already start to see the numbers making sense. You may see an adjustment that costs money but at least makes you bulletproof. Let’s be safe out there.

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:

    the diligent ones among you will of course realise that trade 79 is using June expiry options

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