Trade111 Week Ending 21 December-Almost Xmas

Down Down Down

Oh dear- the US got smashed to bits: SPX 2591-2416 a ‘uge 7% drop. We fared somewhat better- around 2% drop but from the high 7790 in August we are off by almost 14%. The omens are not good and we should bear in mind that the big pension funds get their profits from the stock market. We don’t want to see people losing income, by being locked into a pension scheme over which they have no control. I have a pension that I keep for no good reason and it makes about 3% p.a. Considering how few funds have made money this last 12 months or so, that’s not awful. Actually, it’s awful!

Moving on

I note there was a massive spike in FTSE  volume on 21 December. 1.65 billion. We saw double the normal volume.  Who knows what that means? End of year jostling, dumping some stocks, buying others. I had run a trade to expiry that gave me another credit but I failed dismally to get top dollar. Expiry is random, simple as that. I would have fared better if I’d stayed in bed, though my caffeine consumption might have bordered on toxic. There’s a nice quote by Fisher Black about PIN(expiry) risk, I recall it goes something like: “Put your head between your knees and hang on to your b***s”. I think his meaning applied to those who were short at ATM strikes.

We therefore need to watch the market as it is pushed around a lot- this Friday saw about a 50 point drop around the expiry 10 minute ‘auction’ period. We have discussed that particular piece of whimsy before. Cheap can suddenly get really expensive. We should accept that commissions are generally very good value. Smarter traders than me have taken big losses at expiry trying to save a few quid on comms. If you want to save money take a packed lunch to work!

Latest Trades

I believe we are all up to date with our winning trades. So, yet again some very good outcomes- they can be noted in the comments section*. Suffice to say that this is not some ‘hot streak’ of 110 trades! And, I cannot stress this enough– this is not because I am a great trader. It is simply because options trading is so spectacularly better than anything else for a retail trader. People need to shout this from the rooftops. People with clout and integrity. The message is clear, road tested to Hull and back (pun intended). Nassim Taleb makes the point that options trading gave him a diferent view of other aspects of life. I am still enjoying ‘Antifragile” and doing my best to get my simple brain around the terminology. Taleb’s level of erudition is off the scale!

 

*Saved you the hassle: Trades 105 and 106 again would have made the full 50 if held to expiry. Next up, trade 107 valued at 76 to close out (Thurs 13th) for a small profit of 10.  Then, trade108 cost 18 to openand  the 6500 Jan put was 69.5, the 7300 jan call-a mighty 2! The strangle, trade 109– currently(Dec 11th) about 24 to close out. It made the max 60.5 at expiry. So trade110 made a whopping 60 at expiry. Enough?

Cutting to The Chase Trade 111 (Nelson for cricket lovers)

Hmmm what to do, what to do. How about something totally bonkers? 

A Christmas Tree!

There are always different ways to express trades but the principle is that you are buying and selling down the chain, like a tree. Put another way we are buying a spread for starters, then selling another. So let’s have some fun here. You all know I’m cheap right? So we buy a put spread that costs 32.5 and I suck in a sharp breath through clenched teeth. So then, what if we sold another put spread, for 20. Now we are paying 12.5. So, that is our risk and our cost.

6650long 6550short  115-82.5= 32.5(debit)  6500short 6400 long 69.5 49.5= 20(credit)

We make money from 6637 down to 6413. A maximum of 87.5 (100-12.5)

Mixing it up

As always we have choices, or options if you like. We can buy and sell those spreads in any order. Thus they do not have to be done at the same time. However for our purposes let’s stick to the knitting and place the entire trade at once. Remember these trades translate to £10 per point so the cost is £125, the max reward is £875. Braver souls might do more than one lot, and we can close out any time we choose. Good, innit?

Almost Forgot…. A Very Happy Christmas from Options Investing.co.uk

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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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