Trade73 Cheap and Cheerful

Trade 72- What’s the Story?

Remember? Strangle at 7150 and 6300, credit of 39.5. Now the whole thing has gone a bit lopsided, what are the options (doh) for adjusting?

The puts are now over 10% OTM so no worry there, the calls are close to the money at 100 points above so here’s how to handle it. We have a ‘warchest’ of 39.5 to spend before we actually lose money. We can:

    1. Close out the call at 44 and lose 44-39.5= 4.5.
    2. Roll the call up to 7250 at 19.5 costing(44-19.524.5 leaving us still with 15 credit.
    3. Buy a protective spread 7100/7150 for a debit of (64-44)20. We make 50 if the F goes above 7150, but we are still short a call.
    4. Roll up the put from 6300 at 5.5 to 6750 at 20.5, giving us further credit of 15,and leave the call where it is. Our ‘warchest’ is now 54.5. We can have a bit more wiggle room with that call now if needed. And do any of 1-3, or what else you may like.

The above are just some ideas- explore the options chain yourself- and look at rolling into next month too. Some traders are NEVER out of the market, just rolling into the next trade when they think it’s time. Leaving on a position that has no value is a waste of margin,and you worked hard for your money so make it work for you.

OK, OK Trade 73 -Did We Say Cheap AND Cheerful?

We are revisiting old ground but….there’s a reason. 7425. This is the level I doubt the F will hit and the level at which we lose money. How?Good question the trade is a ratio- we are selling 3 of the 7350 calls and buying 1 of the 7200 call. This is for a small debit of  29.5-(8.5×3)=4. And we will lose this much if FTSE fails to get above 7200. Thus £40 could make as much as………. £1500. I like this for several reasons,vol,theta,delta etc but mostly it’s the key level of 7300 I see as resistance. Oh yes,and it’s dirt cheap!

 

Filed Under: StrategiesWeekly 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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