Trade 95 Week Ending 31 August

Some Graphics To Pore Over, and a Great Exit for Trade 94

As we ALL know- don’t we, volatility rises when the market falls. It can rise when the market rises but it is a measure of the cost of risk. For premium sellers it is a thing of beauty, for those already short premium, it is a pain. Trade 92 was a classic for premium sellers– the strangle. Where is that trade now? Short (sold) the 7900 call and 7300 put for credit 22.5+ 35= 57.5. As of Friday’s settlement it is 0+42. So we took in a credit of 57.5, but could previously  have closed out for <30. Okay so if you’d stayed in the trade you’d still be in profit, but those short puts suddenly got juicy. That is why we often say …………..exit is everything.

What They Get in The US, What We Get in the UK

https://go.cmegroup.com/webmail/502091/173198787/1e95a3e1b806f62f4da1e70574f10b44790304255718cd6417ffd6d9268a66be

Check out the amount of data just for the E-mini- this is just the tip of the iceberg. American traders have such powerful data,so much help. What do we get in the UK, for the entire FTSE chain for August?

http://www.ice.if5.com/MyAccount/Registration.aspx

This is the only source for free-and there is precious little more, even on a paid platform at >£100 a month. Level playing field? We are batting against the world’s best bowlers with one hand. While Wonga gets hounded into oblivion, it might be argued that traders are at a clear unfair disadvantage. And our prices are   ………..   15 minutes delayed!                                                                                                                                          Seriously! It’s like a jealous child guarding the football and screeching “Mine! Hand off”.  I have tried to get some answers from every authority and supposed ‘business ministers’ about this barrier to fair trading. The City does what the City wants, we can take it or leave it.

Rant Over!

Ok back to the knitting. A bit of a dip for FTSE, but next week sees ‘Labor Day’ in the US -a holiday, and the beginning of the month. Surely the influx of the dumb money. Our recent trades have done very well, but that is not the point. ALL trades and ALL traders can be successful with options.        I cannot stress this strongly enough. Even with rotten out of date prices, with zero education from the UK(aside from here) we can make good profits. We can understand  and manage risk. We have done the hard yards, and want to share.

Trade 95

A while ago I premiered a trade that seemed really bizarre but came from http://www.stockmarketexpert.com The trade is a ratio calendar straddle. OK already! Let’s break that down 1. Ratio– in this case we buy 3 and sell 2, this could be bananas, ponies,whatever. Point is, a ratio* is something we all understand as a concept. 2. Calendar.… options trade monthly for FTSE, so we buy in one month and sell in another. Typically we sell the front month, currently September, and we would buy options with  October expiry. The logic of that trade is that theta(time decay) accelerates as we move through the expiry period to the 3rd Friday of the month. 3. Straddle,as it implies, you can straddle a fence(ouch!) but you can straddle the options at the same strike. All clear?

Trade 95 The Details

Straddle, by definition is at-the-money(hope that is understood) In this case the money, the FTSE is 7432, the nearest we can get is 7450. So, this is what we have: 7450 Sept call for 69 and the 7450 put 95, and October 7450 call 107 and the 7450 put 144.5. Here’s the math(s):

69+95= 164. Times 3 = 492 (We are buying 3 near month(Sept) straddles ) 107+144.5= 251.5 Times 2= 503. (We are selling 2 October straddles) 503-492= 11.

I cannot claim any rights to this-it’s NOT my idea, and I have no idea about entry or exit. I have traded it but my broker thought I was nuts. Closed out early for a small profit. The logic of this trade is that it is low risk and you only need a market move, direction does not matter. The near month suffers theta(time decay) however so you do not want to hold on to this for too long.

Trade Logic

Usually there is a good reason for a trade- it’s cheap/expensive/ event expected etc. In this case I do not understand the metrics,but the last one I monitored was 7600 and it made 40. So for any one trade of  3 long and 2 short lots that’s £400, minus 10 commissions. Of course we cannot automate this, it is not a recognised strategy. (As if we have an automated options platform!) My feeling about Trade95 is that it will lose as vol is high for buying near month options and it does not have the same effect on the far month. You can figure out the Greeks with this free, American calculator-remember we are European style, interest rate 0.75%. http://www.cboe.com/framed/IVolframed.aspx?content=http%3a%2f%2fcboe.ivolatility.com%2fcalc%2findex.j%3fcontract%3dC1F2E16A-170A-4DE8-B06B-C41A0EA401C6&sectionName=SEC_TRADING_TOOLS&title=CBOE%20-%20IVolatility%20Services

 

 

  • Fibonacci: the golden ratio, a + b is to a as a is to b     Google it!

 

 

 

 


 


 

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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:

    now 492 and 508 = 16 but not in a good way

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