216 W/e 16Apr Options Expiry. Straddle, Losses and Reactive Trading

That was The Week- FTSE Up Again -There Will Be Charts

Since the beginning of April FTSE is up over 4% . In the last 10 years April has only been a down month once by a meagre 0.53%. So, it may not be the best time to be short, though 4% is a hefty move up. Hard taking a view when VIX is crazy low and markets are rocket fulled by QE∞. While it is patently unfair to all those who have no surplus cash to buy a piece of the action, we have to hope that all round wealth improvement does trickle down. Let’s hit the charts:

Anyone remember this? Back in 2000 you could buy the S&P 500 for one fifth (1/5) the price of FTSE. Cable was about average at £=$1.30  so how did we arrive at today’s scenario whereby the S&P  is about $4,100 while dear old FTSE just limped over £7000. ( FAANGs?) Looks like the lion’s share of the world’s money goes to the US -the P/E ratio is 39.9. FTSE is  22.33. Overpriced? Yes by ordinary metrics but that bus left the shed years ago. What about debt?

Curiously from 2000 until now debt/gdp looks about the same for both sides of the pond with debt going up by >40% since about 2010, for no discernable reason. Like a naughty child finds out that you can pinch sweets and nobody catches you, QE is the confection that has no downside. While it’s all going swimmingly nobody will notice. We had the crisis(credit crunch) in 2007/8 so no need to indebt future generations,

 And yet here we are:

BBC:    UK exports to EU rebound partially after January’s slumpOfficial figures show exports to the EU jumped by 46.6% following January’s 42% slump when firms struggled with new trade rules.

However, the Office for National Statistics said exports were still below last year’s levels and imports from the EU had seen a weaker recovery.

Other figures from the ONS showed the UK economy grew by 0.4% in February.

The UK’s statistics body said the economy was still 7.8% smaller than a year earlier, before the impact of the pandemic.

Let’s do the maths here- (100 – 42)= 58 + 46.6 = 85    In what world are things improving? That trade is lost forever, and the pre-Brexit figures were terrible! Remember we do NOT trade the real economy but it’s good to be aware.

Distraction Trades and a Kick in The ****s

DAX did nothing but create one drifting break even trade, but the biggest shock(?)/ miss was:

OK it’s off by 25% today but as I thought it a buy at 0.038 this is very annoying. However it seems that crypto is as fickle as fashion. Spark the public’s imagination and you have the new ripped jeans. Same old cloth, same production costs, new price tag.

We continue to monitor DOGEGBP, and look for other trade entries with DAX

 

Legacy Trades and Caveat- Some of The Prices May Be Inaccurate Due to ICE Data

Trade 213 Call of The Wild- Terrible Pun!

This was 26th March- April expiry, we look at selling 2x April  6900 calls and buying 1xMay 6950 call for a debit 5 (46- (20.5×2) )

This would get ugly at 7000 

So, last week those prices, 12.5×2   37.5  = 12.5  credit  (paid 5)

This week- 45.5×2 and 82.5  So…. now debit 8.5  but we await expiry  16th april

Closed out on Tuesday for  61 minus 27×2,  a bust.

 

Trade 214 Iron Condor Credibility

Hope you recall the graphic (6500/6450 put spread and 6950/7000 call spread) -both sides give us a credit of 10– but would you risk 30 to get 20 with 49 days to go?

Now 30, 26 = 4 for puts and 82.5 and 61.5 =21 for calls

Now 31.5  as the calls go ITM. 

We continue to monitor that but let’s go crazy with a variant of the ratio calendar: We will sell 3, yes three 6750 April calls and buy 2 May 6750 calls. Nuts in May? Probably but we like to put things out there sometimes. Here are the numbers     108.5 x2 =217  minus 58×3 = 174, debit 43.

Next

204.5 x2 169.5 x3 =508.5 against 409. We paid 43 to get into this puppy and now it is biting us. Well FTSE did melt up 3% -that happens maybe 2-3 times a year.In normal years, not 2020.  Unlucky.

This got very ugly but we could simply sell calls against our long May 6750 calls (6850 calls 176.5 x4 ) Those Apr calls at expiry 270 x3 too crazy for us!

This week May 6750 272×2, 139.5×3  Massive Loser  Closed out early

Caveat: No promises, it’s a fun trade. ( So…. that’s no excuse! )

Of course there was no analysis such as the huge Covid relief funds, seasonality, and a bullish chart. One of my personal favourite indicators is not an indicator, it is the up/down day count and we were at parity. Typically the market runs with a surplus of up days which can be as many as 17 (counted from 01Jan so not helpful unless using a running total for the previous year)

This has to count as our worst loss and would have wiped out the last 6 months profits. Our message here however, is not about winning it’s about education and managing risk. This clearly failed to address risk, with no regard for underlying factors.

Trade215 Low Vix -how to deal with it- April options

How about a very dicey theta play? This is a debit trade and comprises 6900/6950 call ratio spread( 45.5, 21.5×2 = 2.5)  and 6900/6800 put ratio spread (33.5, 11.5×2 =10.5) Risk is at 7000 and 6700. Our time horizon is thus limited to <5 trading days. Nimble is the word for any action needed.

Expiry week requires one to be nimble and we saw a couple of useful moves- firstly we had 33.5 minus 6.5×2 for the puts on Tuesday= 20.5, cost 10.5   We exited the call side -as the market stormed up again 39 minus 10.5 x2 Thursday gave us 18, cost 2.5  39.5-12.5= 27 nett WIN!

Important:

I meant to record these exits in real time- I did screenshot the options chains, hence the prices. I could possibly have cherry picked better outcomes but if this had been left to run to expiry it would have been ugly. Trading expiry week one should always consider 40% of the max poss outcome is good fishing. Our puts covered our costs, this time, and more. Our Calls -well that was to be expected in expiry weeks. These weeks typically see upside moves.

Trade 216 Risk/Reward is Now A poor Prospect

We are going to do something we have not done before- legging in/ adjusting in ‘real time’ at least looking for opportunities in each trading session.

Our starting position is a long straddle:   7050 call 65.5, 7050 put 129.5.

As I have said many times I’m a terrible trader but we reserve the right to review things as we go along. Most weeks I can ‘see’ a trade but this week- nada, zip zero nil pointes. Buckle up. It may get bumpy.