Trade146- Yes, Panic! Orange Alert

A Reminder of What We Do -For New Readers

As I talk with non-traders who have no idea about options, I’m in a bit of a dilemma. Sure I could go in all guns blazing-the Greeks etc. However I like the analogy of the insurance market. Options are a kind of insurance. Thus the options prices we see are like insurance premiums. A trader’s risk is rewarded, by selling premiums, but buying insurance costs money. In the outside world Average Joe cannot sell insurance as an individual. We have no means of assessing Mrs Huggins’ risk of subsidence, or boy racer Lee’s chances of wrapping his hot hatch around a tree.

However we can make a fair estimation that FTSE100  will not be up 5%  or down 10% in the next 5-45 days. We can gauge how risky the trade should be- a simple buy, a ‘spread’, or more complex strategies. Thus we can be the insurer AND the insured. Hard to get your head around eh?

That Was The Week

Options trades were all peachy until a certain Twitter account sparked into life. We cannot tolerate this

https://www.marketwatch.com/story/trump-raises-china-tariffs-in-escalation-of-trade-war-2019-08-23

Traders’ senses of humour beginning to fail now as this wild random posturing causes market damage. It( he) makes a mockery of the economic and financial establishment when an unqualified person(him) can move the markets thus. So, can we expect the FED to be bullied into a rate cut now? And yet, the FTSE has gone almost nowhere this week.

We apologize for not yet having found a smart VFTSE calculation(hence VIX chart above) but time does not permit such niceties. Certainly this trader’s limited maths does not extend to such Nobel Prize level mathematics.

What Caught My Eye This Week?

FOMC meeting didn’t appease he who must be appeased. I believe there may be a rift, but surely it’s no business of the White House? As regards the UK– we seem to have another period of weirdness re: Brexit as the unreality continues. Will we, won’t we leave on 31 Oct ? Traders should take note that politics, while transitory, can be ‘uge market movers.

Those Legacy Trades

Trade144

our Sept Iron Condor- selling a put spread and a call spread:

short 7000 put long 6950 put for credit 71-60.5= 10.5

short 7450 call long 7500 call for credit 35.5-25=10.5.

Total credit 21, max risk 50-21 =29.Risk at 6979 and 7471.

Became  13 and 5.5 =18.5 last week, now 12.5 and 3= 15.5

You could add another say 6900/6850 put spread for 9.5 and 7350/7400 call spread for 10.5 =20. (Now 9 and 8=17)

Trade145 

Theta lovers-one for you! A ratio calendar but as we need to keeping things simple we stuck with puts.Thus we BUY the Oct 6600 put and SELL two of the Sept 6550 puts. Prices 1×62.5, 2x 31= 0.5 Debit.Now 1.5 credit

For fun…..Calls 7350(Oct)  64.5  (Sept)33×2. Credit 1.5. Now 17.5 credit. And I scoffed!

TRADE 146- Safety First 

A closed ended strategy for safety and maybe unattractive returns but times dictate. There may be trouble ahead.

It’s another Cadillac trade- the ones that give your broker a nice chunk of comms.

Put Butterfly buy (Sept) 7000( 86)/ sell 6900(63×2) / buy 6800(46.5).   86+46.5 – (63×2) =6.5 Debit

Risk? – just the premium paid, 6.5 max reward 93.5 ………we’d take 25.

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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  1. zxcv says:

    The Put fly (trade 146) looks interesting. I’ll see how it is priced when the market opens on Tue, and use modelling software to see what the P/L diagram is like, esp if the FTSE rises back up a little.

    Thanks and happy trading.

    • Terrapin Trader says:

      nice to get feedback- in all honesty I set myself a limited amount of time to select trades but I am not a methodical trader with spreadsheets and the like. I just look at the options chain and the prices often suggest a trade. Trump may change course on tariffs now so we may see a bump up.
      Enjoy. T1

  2. zxcv says:

    I actually opened the 6950/6850/6750 fly today based on the one you mentioned (couldn’t do the 7000 strike as I already have short puts at that strike as part of another trade) for 7.

    Just a little flutter in case the FTSE decides to go downhill.

    Will keep you updated.

    • Terrapin Trader says:

      I have often been surprised by butterflies-you think they are so loaded with comms they won’t do much. If I was trading the US with comms at <$1 I'd be doubling my activity-it shouldn't be this way but there are so few UK options traders. I'm doing 30- 60 lots per month- I know it's rude to mention size. Happy trading

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