Trade132 Week Ending 17May

That Was The Week

On a personal level I had to make a few trade exits. Whilst I was aiming to get the 100 max on each, I was happy to settle for 23 for a put trade and 14 for a call trade. However max profit for me was at 7150 and 7450, so with the market smack in the middle I could have scored a big fat nothing. Luck or judgement? Both.

The market was being moved by ‘exogenous’ events, or, as we better know, Trump Tweets. So, when in roller coaster mode we cannot make a judgement as there is no foundation, no real basis for a judgement. Forex traders may have noted a drop in GBPUSD. So,is the market dismayed at the political mayhem this week? A non-event yet again.

Expiry and an Update on FTSE ‘Support’

minute by minute expiry

Up 2% on The Week- The World Gets A Little Crazier.

 

Thanks to Incrediblecharts(above) who suggest that FTSE found support at 7200. Thus I think I was a little out and did not expect such a low dip. However it’s pure conjecture, time and again we trade on options prices. Whatever makes sense given our trading style. Thus I think it’s worth pointing out again, that equity options trading will throw up many more opportunities, alongside the additional risks.While  FTSE does get affected by dividends, overall it’s not going to take 5% out of the price. That can happen with a stock. We’re no longer 21 and don’t need those thrills. So, for excitement I’d suggest a wing suit*, and keep options trading as a business.    *( I’d love to do that!)

 

Those Running Trades and Trade130……………………………4 Consecutive Wins

Trade 128–  7350/7450 call ratio spread/ butterfly(ratio= 22,(paid 8.5) the ‘fly= 29 paid (26.5)).Thus the butterfly was not a win, but the ratio-had 2 bites at this,(Trade131) paying 8.5 to get 22,and paying 4 the second time, to get 14.

7400/7300 put ratio/ butterfly: ratio= 9.5paid minus 1, ‘fly- paid 15 now 18) Small wins but we ran them.-Turned out very very well. Settlement at 7325 means the ratio gave us 75,(paid minus1) . While the butterfly did the same but with entry cost 15.

Trade 129

This was our quasi butterfly/ratio/calendar  We were selling 3 of the May 7200 puts at 16.5×3= 49.5. We were buying 1x 7250 Jun put 68.5,and buying 1x 7100 39. Cost, therefore was 107.5-49.5=58. 

At expiry we have (64 and 32)= 96. We paid….58.  

Trade130- Selling the Odds With Call ‘Fly

May call prices for a butterfly. So we can buy this or sell it for 161+29.5- (82.5×2)=  25.5.

strike       price

7200        161

7300        82.5

7400        29.5

So….we can sell this and have a credit of 25.5, or we can buy it, but our expectations are of course       different.                                                                  

So…… with expiry at 7325 the 7200 call is worth 125, the 2 short 7300s= 25×2, the 7400 is worth zero. We make 75- nobody* sells butterflies- why would you? Risk 75 to make 25? It does not stack up.

* I did come across someone who did this but you need to ensure your ‘fly is going to be out of the money, or it’ll be a short trading career.

Trade132 Sell in May and Go Away

So goes the aphorism, from a different age. Thus it may no longer make much sense, and I believe there are stats to show this. From Wikipedia:

Bouman and Jacobsen examined the period January 1970–August1998 and documented unusually high monthly returns during the November-April periods for both U.S. and foreign equity markets, and labelled this phenomenon the Halloween effect, updated in this pdf with emphasis on the UK(page22).https://poseidon01.ssrn.com/delivery.php?ID=987090099095089080024067078110092010005037036006012036006088079066073116000011065087032117025055047016034004088071098001075068054019030026019013091008030007087087033082051116101123001066110007083103089071086004105070125086007073067023024094122013126&EXT=pdf

No idea if this is in any way relevant this year but we can test this cheaply.

My favourite, when prices agree: We are buying the 7200 put(50.5) and selling two of the 7000 puts(20.5) for June Expiry. thus our risk is at……. 6800. Our reward a whopping 200. Of course need margin, but our cost is 9.5. I don’t like this trade,I love it! 

based on FTSE cash for our purposes. This is a futures calculator

 

Thus Bouman and Jacobsen will owe me a beer if this fails!( I can collect in Nottingham-see pdf)

 

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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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