Trade 86 Dead Calm, No Sign of Troubles Ahead(?)

Stolen from Facebook- it seems to be public domain-and it’s funny!

Trades 84 & 85 Nothing To Report

As the week ended pretty much flat- totally flat at 3:00 pm on Friday in fact, then the market swooned. Our 2 trades will have an outcome but in 2-3 weeks. In the interim they could do something profitable but not hugely likely. Patience,patience- or in options parlance -everything normal, chill. Meanwhile back in the laboratory-can we gain an edge from a ‘World Cup Effect’? Good news and bad news on that front-it doesn’t seem to make any difference. I need some inspiration.

When The Market Refuses To Give Us A Clue

The challenge as every week is to find something interesting. I look for trades that may have a fair chance of success, but I also look for trades that help us to learn. In the locker this week- direction? No clue. Upcoming events? Contradictions and confusion. Timeframes for us, are key and we always need to find an edge. Frankly there doesn’t seem to be one and we may be entering a low volume period where moves can be dramatic. We therefore need not to be courting trouble with spurious assumptions.

What Metric Can We Rely On? Every Option has the Greeks

We are now in the phase of the expiry cycle where theta starts to work more keenly. While doing no calculations but purely looking at price the following trade waved and said ‘”pick me”. Theta naturally works faster as expiry looms, and we can always use this fact with a calendar spread. Infallible it isn’t. Nail biting it isn’t – usually, but let’s ratchet things up a bit. We are going so sell twice as many near term options, both calls and puts. A calendar ratio strangle if you like, or a double calendar.

Here’s What We Have

We are selling 2July 7100 puts(14×2=28), buying 1 August7100 put for 30. We are selling 2 July 7800 calls( 23.5×2=47) And buying 1August 7800 call for 48.5 This is a debit trade, therefore at a cost of (30-28)+ (48.5-47)= 2+1.5. This is a great trade, I reckon. Didn’t take it personally. Risk of course if FTSE goes nuts above 7800 or below 7100. The chart does not suggest these levels are a problem. We may find we have a long strangle worth considerably more than our 3.5. ¬†FTSE at 7636, doesn’t seem to have much upside, but hey what do I know? Enjoy our journey.

 

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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