Trade 83 – Is The Picture Really That Bad?

 AFP PHOTO / Miguel MEDINA (Photo credit should read MIGUEL MEDINA/AFP/Getty Images)

Some Housekeeping, Catching Up

Trade 82  June/July calendar 7150 puts now worth3×2=6 for the June puts and 16 for July = 10. We paid a debit of 6.  Not great but a winner, to date, and has this week shown a closing price of 13. Personally at such a low  entry cost I’d hang on for a drop. Or…… sell a July 7050 put for 12, close out the June short puts and we have a free trade that is worth a max 100. Remember we paid 6, it cost us 3×2(6) to close out but we took in 12 for the 7050 July put. Bulletproof.

Trade 83 Summer Madness- but at No Cost

Trading volumes start to get thin this time of year but we could see a crazy run up-counter to all the gloomy news about G7. To capture that we like the a buy of the 7800 call at 50.5, sell 2x 7900 call at 24.5. OK so it’s a small cost (1.5) -you could probably leg into this. We have risk at 8000. Zero risk below that, other than our tiny cost. We get a good return on anything above 7800. Margin required as we are nett short a call.

Size is Everything

I just confessed to a dumb trade that I had to roll into June from May. What made my life so much easier was size. Had I sold 40 or so calls I would have had a margin call and been forced to close out at max pain. This dumb trader got seduced to the dark side of just selling premium. This dumb trader makes the same mistakes, despite the pearls of wisdom freely dispensed here. But…….. in manageable size.

Talking of Wisdom

I  always enjoy the weekly emails from the excellent John Mauldin. John has recently written a series about debt. So, what really should concern us all? I call it ‘Too much money syndrome’.  Lenders have let their criteria slacken off, being so desperate for yield. We won’t see a problem until the defaults start as they inevitably will and there really will be NO takers for this paper. BBB rated debt is not my idea of smart.

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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