Trade Zero 0.2, WeekEnding 20 March 2020

Should We Even Be Trading?

Chances are that as short selling has been banned in most of Europe, the derivatives markets may be suspended. I will, however explain what I have done recently. Should it be a help to anyone. So let’s start with a few confessions:

I often say I am a terrible trader but options have made me profitable. I still think this holds true and you will see this evidenced. There is a book among my hundred or so trading books that has interviews with 17 traders. They are all discretionary, they are all successful. Nobody wants to read about 17 losing traders, so, it’s a case of cherry picking. Why are they successful? One theory suggests ‘gut’ is as good as any method, so my ‘gut’ has helped me find good trades,but has been a curse when exiting. I had addressed this by having credit trades with excellent risk/reward. And then messing things up by not following the rules.

Our research gave us an edge after several years of testing, until Feb 20th -no wonder!

Two Good Trades Spoiled By Bad Trading.

These are real trades:

March 3rd Bought a put spread 6450/6300 for 37– at expiry it would have been worth 150 of course. What did I do? Converted to a butterfly and sold the 6300/6150 spread,making it a free trade with zero risk. I closed this out for 15.

Next up March 11th bought  5850/5700/5550 butterfly for 11, sold for 15 (Did ok based on reason )

Then March 13th bought 5500/5350/5200 butterfly paid 13 closed out for 12. FTSE expired at 5350-meaning this would have made about 145

See what I did there? Had I sat on my hands on trades 1 and 3 I’d have made far more than I lost recently.

I failed to make an analytical decision but exited, or adjusted on a whim. Why do I not place the same value in analysis in closing a trade? Some people really ‘get’ trading after a few years. Me? 20 years on still a bit of a plank!

Our Trades at Options Investing

All prices and strategies are 100% legit many of them are my own trades but not all. I am not a lover of debit trades,and that is a bad habit. Whatever the future holds, I hope we can return to a semblance of order in markets, but this may be a good time to stay away. Losing trades-you did a service to the market. Winning trades? Give some profits to charity, there will be plenty in need. It’s important to keep the mind active so here’s a thing or two:

https://us7.campaign-archive.com/?e=2532ee08d9&u=119792921d353d5c31ea3b6a5&id=8040a2b3e5

https://www.mauldineconomics.com/frontlinethoughts/the-beacons-are-lit

That Legacy Trade:

Here’s an example: Buy the 5200/5100 put spread for March -pay 35.5. Sell.…  4900/4800 March put spread for 20.

Closing prices on Thursday: 46 and 5 =41(Cost was 35.5-20= 15.5) 

Trade Zero 0.2

Put Butterfly for April expiry   5000 247.5   4800 187(x2)   4600 140.5= 388- 374= 14.

Remember –buy the wings, sell the body x2. Here’s one of those daft P&L Graphs:

It’s patently obvious what the payoff is at expiry but look at how flat the profit line is after 16 days. You may want to keep out for now, and watch this in a week or so. It is cheap as 14 gets you 200. Risk is …..14

 

 

Filed Under: FeaturedInformativeLearnStrategiesWeekly 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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