Trade156 Week Ending 08Nov

That Was The Week -We Ground Higher, Then Dropped

Impeachment, drop out MPs and yet the financial markets grind away. So the S&P up 23% FTSE 9% YTD. And we just saw the S&P hit an all time high. Life’s good-borrow for nothing buy the dips. What could go wrong? How about this?               

The same ratings agency that gave AAA rating to the US mortgage dogs***t (to quote) in 2008 that led to the crisis. Britain does not default! Perhaps people are looking to get some tasty yields on trusty gilts knowing this? Sterling may take a tumble, but that’s not always a bad thing. FTSE would climb that wall of worry and the shorts might be badly burned. Like the sterling shorters from last expiry.

Options and Bias- Some Confession.

Regular readers here may detect a theme- a hefty bias towards trading puts rather than calls. This may be for a number of issues but firstly the monster that is bias. I have mentioned this before and I even have a chart of 20 cognitive biases. The ones that ‘screw up’ your decisions. However let me temper that with actual outcomes. I just seem to trade puts better, in the same way I fail to envisage upside. This is rooted in my deep mistrust of anything remotely ‘bullish’. I coined the phrase ‘markets rise on lies and drop on the truth’. It’s not wrong it’s just not helpful. Opinions do not pay bills. Unless you happen to have the correct ones!

I was recently asked if I was a millionaire(really!) and had to respond thus: I’m a knowledgable but crap trader.  It takes all sorts and there are some dumb highly successful people, and some super bright under performers. I’m in the lower quadrant of success and smarts-and THAT  is what makes options such powerful tools to trade.

Those Legacy Trades and 156

Our trade 150 How did the adjustment do? Butterfly is of course 7250/7150/7050(160,106.5×2,69.5)=229.5-213=16.5We are short some 6800 puts though….. 24×2= 48. We’d be underwater for 28, remember we have a credit of 3.5 from the adjustment, hence 48 – (16.5+3.5)=28debit.  Credit 12  for the butterfly  short puts are 4×2=8  so still ugly –losing (28-4)= 24,but not a catastrophe. Now…

7250/7150/7050 ‘fly= 49.5,24×2,13.=14.5   6800 puts are now 4×2=8. Our loss is now 24- (14.5-8)=17.5 loss

We could have stuck with the put ratio spread and got ourselves a tiny closing credit of 2.5, combined with the credit 19 from the adjustment. CLOSED Winner for 21.5. Peachy trade- when managed in hindsight.

Trade 153 

Long put spread 7000/6900 ( 56-36.5)= 19.5 We bought the 7000 put and sold the 6900. You say ‘that’s a bit pricey’-ok, so let’s be a little cheeky and sell a 6750 put for 20. For a tiny credit of a halfpenny.

We note those prices now 7000 put=9.5, 6900 put=6, short 6750 put 3. Neutral

Thus, no loser but just going through the motions, so… CLOSED out of boredom!


On my chart 7422, – it looks like quite strong resistance yet the pathway seems upwards. Speculator that I am on levels, I think we can get short at 7450, but long below it. You ask how? 7400 @28.5 7450 @ 15.5 or 7500 @8

So, picking the bones out of these strikes and prices we  construct a long 7400/7450 spread, and sell above it. Though personally I favoured a ratio spread –selling 2 of the 7450calls for each long 7400call. Thus we collect (15,5×2)-28.5= Credit 2.5 You could opt for long 7400/7450 spread and sell the 7500 at 8, giving a Debit trade of (28.5-15.5) -8= Debit 5 This is now 14-(4.5+1)=8.5-5=  win for 3.5

Everything else was boring, but the ratio now: 14 and 4.5×2= Credit 5

CLOSED Winner for a pittance!


7150 put calendar spread with a short We sell the Nov put and buy the Dec put 

We also sold 6950 Dec put for 41.5.

Our debit then 81.5-(24+41.5)=16. Max profit 7150-6950 put =200 after expiry!

Those prices now: 4.5 for Nov short put, 51.5 and 24.5 now 51.5-29=22.5, we paid 16 for this. More to come….

Trade156 It’s December Trading Already?

With November expiry 9 trading days away can we salvage something from the ashes of a mostly spent expiry cycle? Let’s have some fun with a short call spread  long 7400 at 14 and short  7350 call at 34.5   long 7300 put at  21. I reckon this is an ugly trade as it only has one proposition -it makes big ££££ if the market drops. It could lose 50-or we could get creative with adjustment. We can adjust ‘on the fly’ too. No expectations just a ‘hail Mary’

We now have just 2 legacy trades -how will they interact?



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:

    trade 156 hit a massive 60 as Nigel Farage duly obliged- I owe you a pint,sir! Details to be published in next issue

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