Trade102 Week Ending 19th October


I’m sure this is a noble venture and can be found here:

Unfortunately much of what I have seen is just terrible. I mostly see a bunch of hapless punters all taking a ‘punt’ on this stock or that stock. Even worse they are buying or selling naked without a clue what they are doing. No analysis, no awareness of deltas-and this really hit me- absolutely no idea about volatility. And……… don’t get me started on theta!  So, while it’s great to see options getting publicity, sad to see such  ignorance and indolence.

Trade 101 Small Loss…… Kidding!!!!!!!!!!!!

I have to confess my heart was not in this and I’d suggested this butterfly: October strikes: 7050/700/6950 puts. Expiry was at 7020.5, so it made in actuality 29.5. We paid 7. That sort of profit is reserved for the crypto currency people isn’t it? 185%, 217% 300% profits yadda yadda. We do that too, but in real time – we just don’t bang on about it. Please note this is the first time in years I have actually watched expiry- it’s not fun. I felt guilty as I had not watched this trade during the week. Selfless to a fault, that’s me!  I’m intrigued by expiry data though- but you couldn’t trade from one expiry to the next. Dogma is the enemy of strategic trading.

The Week’s Events

What moved the market? Er, nothing it went nowhere!

OK, some tiny moves but nothing that set this trader’s powder on fire.  I think volatility is up a bit, but option prices are not reflecting this. In my opinion!  I think It’s like risk is some dim and distant memory, and options sellers think the big dips are done for the year. Thus all eyes are on the Santa rally, with a few pundits bleating here and there. Options, as used in the Ansbacher Index (referenced here long ago) can be a predictor of the market. Open interest too. So I tend not to read too much into these as an ex-assiduous calculator of Max A’s index- it failed often. But maybe it has its moments

Trade 102- Let The Market Decide

Sometimes we like to leg in, when we don’t know where we are at. I might think this is the bottom of the dip and 7000 is support. Part of me thinks there is another leg down and that level would be….6700-6800. So, what about the upside? 7300-7350 – ish. I’m making a guess based on recent price- and by recent I mean this year. I note that to date FTSE is down this month 6.13%. Here’s the plan-it’s a short iron condor. The conventional wisdom says to sell spreads, we will buy them, and the strikes for Nov: buy 6850 put at 50sell 6800 put for 41, buy the 7250 call for 23.5 and sell the 7300 call for 15.5. So, here’s the math’ 50-41= 9, 23.5-15.5= 8.Total cost, therefore 9+8= 17.

Logic of The Trade

We are in for a cost of 17, we need to recoup this when the market lets us. Right now there is nothing to the upside-it would be folly to sell another 7300 call for 15.5. On the downside? We could sell6600 put for 20. We now have risk at 6550, but a tiny credit of for the trade. Greedy me wants to wait for a bigger move, and leg in.

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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  1. Terrapin Trader says:

    OK- NOW I’d have sold the 6600 put for about 33, giving us a credit of 16 on the overall position and you could get creative with the calls too. So the most this trade could give us now is another 50 and our risk is at 6550 -about 6% below the market. Time to have a cold one….

  2. Terrapin Trader says:

    get ready below! Market is in selloff mode -stay awake

  3. Terrapin Trader says:

    was anyone watching? The call spread made 10, on the downside we still have a tiny risk but could close out the whole position for 2.5 -so that’s about 39.5 in all -a very good win I’d say/ A better trader might have smashed it on the upside with those silly intra day moves up and subsequent fades

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