Trade161 Week Ending Friday 13th December

That Was The Week

We were awestruck at the movement of the FTSE250,  at one point up >5%. The listings on this index are the more local businesses, and reflect the UK economy more so that the FTSE100. Boris, it seems, has inspired the money people. Exuberance or smart money? I believe there is a whole groundswell of opinion that thinks the UK is greatly undervalued. Traders like us don’t care much for direction, we are focussed on risk. So, this may be a bad time to be selling both puts and calls. Therefore, premium sellers may want to take a break for a few days. Or get  some low cost long positions. In short,don’t bet the farm, or maybe pile in, what do I know?. This rally could take off big or collapse like a soufflé in a cold breeze.

Hilarious that our crazy bogus trade 160 -the 7250 straddle last week made a modest return. (See comments). Not one to hold until Friday of course.

The pundits in the financial press are playing down a certain impeachment see: https://www.marketwatch.com/story/back-up-the-truck-and-buy-buy-buy-because-there-is-no-risk-says-mufg-economist-2019-12-13?mod=home-page

And this view:

https://www.poundsterlinglive.com/gbp-live-today/12545-as-good-as-it-gets-for-pound-sterling-for-now-but-2020-could-see-yet-further-gains-vs-euro-and-dollar

Revelations and Research

Thanks to Tasty Trade for some really interesting work:  https://www.tastytrade.com/tt/daily_recaps/2019-12-11/episodes/premium-decay-varying-deltas-12-11-2019 

Several takeaways from this in that we each have a way to explain things. We like to make analogies in order to better understand concepts. Options are the concept album from heaven! For us it’s all about mindset. Tasty also talk about exiting at 50% or 25%. Personally I have taken a view at 50% profit but it is not easy when you believe there’s more profit in the trade. I erred on the side of caution and got a nice exit for December expiry, but now there may be more juice in that tank.

My trades each week are based on a personal view. My punishment for failure, however does not bear thinking about.

Trade 161 After The Main event

We still have a week of December expiry remaining, so let’s have a look around…. I have mostly contrarian views but I’d like something cheap and relatively safe. So on that basis I like a ratio calendar diagonal. We’ll break that puppy down into chunks via the medium of interpretive mime. Seriously, the ratio : we will sell 2x Dec 7200 puts, and buy 1xJan 7100 put. Calendar or time element: we sell the near month for big theta(time decay) and buy the Jan, but that strike is 100 points lower hence the term ‘diagonal’. We’d expect risk to kick in if FTSE dropped to ±7170.

Delta: 0.16 x2= .32, against 1x.20. A bit ugly

Gamma (ouch) 15×2= 30 against a paltry 9

Vega 2.4834×2=4.9668 against 6.3049, and then the biggie, Theta: 2.4834 x2= 4.9668,against 1.2196. 3.7472 (Yuuuuge)

It’s a bit risky for us, but the cost? 34.5 -(13.5×2)= 7.5.

Paint me pink and call me Doris but I think this might be a peach. Did I mention I’m a crap trader? don’t try this at home!

Apologies: The graphic I wanted to show cannot be uploaded for reasons beyond my IT understanding. Oh wait! Here it is:

 

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.