Trade 96 Week Ending 07Sept

Action This Week

We have seen FTSE drop substantially from  7760 on 11th August- to the the low on Friday  which was 7227. We had almost 12 weeks of centering around 7650 and perhaps that is the new resistance. Hope we find decent support this week. Typically my trades can withstand a 6% drop,thereafter I need to adjust. This week was also the 45DTE time ( 45 days to expiry). My gut told me to exercise caution, so I have no October positions yet.

The Week’s Moves and, What is Driving This?

FTSE is deep in bargain territory at a PER of 12.13 according to the FT. Pound strength- a good Brexit seems to be bad for the stockmarket we’re told. Who knows? Wages are rising in the US and corporate profits are still good. The UK seems to be ticking along too, but the media needs a story,and misery loves company. Meanwhile back at the ranch……………

Trade 95 How Did That Go?

Remember the trade? buying 7450 Sept call for 69 and the 7450 put 95, and selling 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. A credit of 11 to open the trade.                                                                                                                                                      Here’s what happened by Friday:  Sept straddle (12.5+184)x3=  590, Oct straddle (44.5+228)x2=545. Therefore we close out for a credit of: (590-545)= 45. But….. we took in a credit of 11. We thus made 56, for a zero cost trade in essence. Not a zero risk trade,however. These profit on big market moves such as we saw last week and the increased volatility. Another winner, but I claim no glory. These can lose money as they did when we were stuck in a tight range.

FTSE Range?

Chart courtesy of https://uk.investing.com/indices/uk-100-advanced-chart

I like the idea of levels as opposed to guessing direction, previous resistance may become support and vice versa. I feel this can help us with options trading alongside the Greeks, which brings us to:

Trade 96

A long call spread looks reasonable. This market can whipsaw after such a strong series of down days- the last 4 lows have been brutal. I like the 7400/ 7450 long call spread. Prices 22.5 and 12.5 so we pay 22.5 for the 7400 call and sell the 7450 call for 12.5 giving us a debit of 10. Should the market have a quick blip up, I would look to sell another call perhaps at 7550, once/if  the market has moved up. Risk limited to premium paid, maximum reward is 50-10= 400% gain.  

 

Filed Under: FeaturedInformativeWeekly 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:

    It’s expiry day and trade 96? Of course it’s another winner -making the spread worth about 30 at 09:30-ish. This flies against the history of recent expiry weeks but there had to be an up week sooner or later.

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