Trade Zero 0.3 Week Ending 27 March

 

That Was The Week

Oh my! Mr. Market made mighty swings in a week that went from <5000 to >5800. Seems a little futile talking % up or down. We can learn very little from this market as the drivers are so peculiar. Central bankers are pouring untold amounts  into markets. Many countries have ramped up welfare benefits to dizzy heights. Last time we saw these levels, there was another, smaller crisis   https://en.wikipedia.org/wiki/August_2011_stock_markets_fall

Though Greece (Grexit) I seem to recall being one of the key issues at that time. However, that was 2012, and I traded somewhat ‘robustly’* through a large drop and that one trade was about 50% of my year’s profits. Likewise 2009

This time it’s different -and there are no lessons to be learned from the last pandemic in 1918, and the West breezed through SARS, H1N1, H5N1, AIDS etc. The people downplaying this are the very people who should know better. No names need to be mentioned.

*A better description might be ‘Antifragile’ as long options are. They can thrive in chaotic conditions.(Taleb- Antifragile)

When Trading Takes The Back Seat

Personally when I have down time from trading( 28 out of the 30 days per month ) I like to learn different subjects and there is something for everyone with an internet connection, from the Higgs Boson to Marketing and Teaching Maths to name but a few I have studied.

https://www.futurelearn.com/courses?filter_category=8&filter_course_type=open&filter_availability=started&all_courses=1

Webinar – To Stream or Not To Stream…..

As a voracious consumer of free trading resources and education I try to keep up with the various webinars. I was again tempted to view one from a UK fund manager. They are ALL trying to sell us something, but when trying to make the point about the win rate we have, he was utterly dismissive. “Anyone can have that win rate just by selling options, it’s when you get caught it’s a problem.” Not sure I agree with such an attitude-smacks of sour grapes, and of course here we do not advocate selling naked options.Our losses were tiny.

We are that rare breed and our chosen weapon is not for those who find comfort in stocks. I would give him credit however for finding an ETF that is 3xShort the index. I doubt us small retail traders can hook into that action. Without that, his wonder strategy would be toast! Like all those long only funds, who for so long bought the dip.

Legacy Trade Zero.02

Paid 14 for the 5000/4800/4600 butterfly – now 131/89.5×2/59.5= 11.5

I did state that I felt this would go pretty much nowhere until we get close to expiry.

Zero.03

More of the same really, if you feel you need to trade. A wider still butterfly for those with an appetite for big reward/risk. Again it’s a put butterfly strikes and prices:

5250 203  5000 131(x2) 4750 81. Debit 284-262=22

Max profit 250 Max loss 22.

A look at the call side too…… 5600 242 5800 156(x2)  6000 92.5  334.5- 312= 22.5

Clearly one needs to take a view- it will need to be at the centre strikes at expiry- either 4800 or 5800, and it could end bang in the middle.

How about an iron butterfly at 5500?   5600 call 242 5500 call 293  5500 put 303 5400 put 259.5. Sell the body buy the wings, remember.  Thus we have 293+303= 596.  242 +259.5= 501.5= 94.5 credit Max risk 100-94.5= 5.5 Max profit 100, with expiry at 5500. Crazy? Well we are off the hook for real trades for now, but you may wish to monitor these for fun. These are all known as ‘Cadillac trades’ because they are commission heavy and may enrich your broker far more than they enrich you.

Caveat – any trades making big profits will not be included in our run of trades to date. Same goes for the losers- we cannot take a view currently, so these are just ‘watch trades’

Stay safe.

Oh, and this- hope it does not offend: https://www.youtube.com/watch?v=lIhkTVyui-I

 

 

 

 

Filed Under: FeaturedInformativeLearnStrategiesWeekly Trade Idea

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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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