218 W/e 30Apr Ratio, Puts in May

That was The Week The Market Went Nowhere

Covid rampages across India, the UK seems to have it under control, but the US still shows 60,000 new cases a day. Hard to know where anyone of us is in the virus cycle. Impossible to know who is recording accurately. The UK records deaths within 28 days of a positive Covid test, but how to quantify in a pandemic may be simply a moot point. We just need to ensure survival and a return to ‘normality’.

In other news, Boris continues his buffoonery with ‘wallpapergate’ though it’s odd that a ‘busy’ man would take any note of the decor of an already smart residence. Joe Biden after 100 days, is shown to be a steady hand, a considered and rational man. The EU is in double dip recession– of course we’ve all actually been in recession for decades. Central bankers know this but pretend otherwise. So actually, we’re just massively in debt. Nobody cares.

Dude, Where’s My Vol?

We live in a precarious world of a pandemic, political and civil unrest and wild weather, and the risks are real, so why is implied volatility so low? How about there being more sellers than buyers? In part this was explained by the antics of the institutions in a CBOE Webcast on Wednesday: Tenor, Theta, & Use of Weekly Index Options.

Tenor, you ask? Apparently it’s an allusion to the Three Tenors,(5 strategies in all, but 3 put strategies) related to options strategies:

The strategies are the PUT index- selling ATM puts, the WPUT selling weekly ATM puts, the PPUT– buying protective puts. Room, elephant… BXM covered call index, here is another screenshot from the webcast:

So they are ALL selling options because the strategy has a positive return, they tell us:

This traders notes the decent return on the 2% OTM, and duly observe that nobody is buying protection, yet the downside is not as bad as simply buying the index. Anyone else following the webcast would have noted that they stuck to talking about the ATM strategies. Interesting and annoying in equal measure. When you have deep pockets you can make serious coin doing something as dull as this. Elephant no.2 in the room was the cash being invested in T bills. Good luck with that!

They Took Your Vol, Mate!

Of course implied vol is higher that historical- you are having to guess the price of the future. Relentless selling of options will lower the premiums so much so that for example 2018 showed negative returns as the market was flat as a millpond. I make no boasts about my lack of education, but surely when we all try to sell the same thing, we get lower prices, while the risk is actually elevated. Chaos follows calm and vice versa. Ultimately we have to live with the premiums offered, and make trades accordingly. There remain no free lunches.

It is really worth getting on board with the education from the pro’s and this link https://www.cboe.com/education/#events takes you to the good stuff- like a certain Mr Natenberg’s ‘Demystifying the Greeks’.

Those Distraction Trades

DAX…. eye off the ball this week but nothing to write home about. No disasters, no proper entries

DOGEGBP……………… we saw a plummet from 0.30 to 0.12 and bounce to 0.22 and this skeptic is still concerned that the security and integrity of these platforms is a ‘work in progress’.

 

Those Legacy Trades and 217 a Revisit

Trade 216 Risk/Reward is Now A poor Prospect

(Apr 16th)

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

 

19/20 Apr

It got bumpy but we locked in a great profit- and hopefully you have seen the comments section in real time: So- as promised we leg in by selling 2x 7150 calls at 36 =72
we buy 1×6850 put at 48= 48
then we sell 2×6950 puts at 91=182(market has dropped but only 40 points)
We now have a put butterfly and a call ratio spread,
and a small credit of 206-195= 11.
We use that to roll up 1  short 7150 call to 7200. Thus our risk is out further to 7300

As of 23 Apr settlement the put butterfly = 19.5, The call ladder 13.5. We run this for fun,too

30 Apr  7050 call 45.5 and the put 145

7150 call 17.5  7200 call 10     6950 put 92.5  6850 put 58.5

Call position 45.5 -( 17.5+10)= 18  credit   Put position   145+ 58.5 minus( 92.5×2)= 18 credit

217 If You can’t be Original…. 

When it makes no sense to do something exotic we sell a  6650 put 31.5 and a call spread  7000 52.5, 7050 35 

This is of course a Jade Lizard, selling the call spread and a put to give us ±50 credit.( ok it’s 49) Enjoy.

Now 6650 put 25.5 and the call spread 67, 45.5 = 47 ….Yikes! We’ve gone nowhere!

218  20 days to go, Nuts in May pt 2

Caveat- this is a pure  exercise and not for the faint hearted. Our remit is a new trade every week, so………………. once again, buckle up                                 We are buying the 7050 put for 145  and selling 2x 6950 put at  92.5 (185) A credit of 40. This is inspired by the CBOE Webcast.

Note of caution: While opinions expressed here are personal, the CBOE Webcast is backed up by solid stats, and in fairness what they do is little different to insurance. Although I would argue that I can pay <£200 for car insurance, but when I scroll down through the quotes, I can actually get the same cover for £1,000. Who overpays? Not us, not here! Clearly many people do as you don’t see insurance companies operating out of a garden shed.