That Was The Week : A Sudden Friday Buying Frenzy
US$ Strengthens, inflation is scary yet nobody cares https://www.zerohedge.com/markets/we-are-building-big-accident-gap-between-10y-yields-and-cpi-highest-1980
So is there any point following the news? This trader has always erred on the side of caution, awaiting the release of ‘key data’. Might as well enjoy the sunshine! However many trusted sources point to the serious disconnect twixt market and reason:
Surely earnings are key to market valuations? Surely others have spotted this? Thus if we were buying a beer on this basis, it would probably be about £30. So market forces would then dictate, and nobody would buy at that price forcing it to a realistic level. However such a hypothesis supposes there are sensible buyers only. Clearly there are not! Buyers don’t care because there is no reward playing safe, and risk is a distant memory. Stuck record?
Freebie Education
Meanwhile CBOE (pronounced see bow) gave a great presentation about the nature of options trading and the post GFC 2008 changes. Enlist, if you are able in the link below, highly recommended.
https://www.cboe.com/education/#events
Primarily, the trend is towards ETPs -exchange traded products, with banks moving away from OTCs. (Over the counter- under the counter as we know it!). Europe is way behind the US in derivative trading and retail in the US is huge. However, we few options traders in the UK are about as common as Fabergé eggs.
Hopefully the screenshot are self explanatory:
The smart end of the market trades options. Yes it’s hard work understanding concepts, getting to grips with the Greeks, but profits are far more likely than buying into Crypto. However the day trade/crypto/spreadbet approach is the lazy way to losses, in our opinion. Our record stands.
Distraction Trades
This imbecile bought XRP (Ripple) for $1.03 where is it today? $0.83 . I am thankful I did not commit anything more than a few hundred £ worth of my options profits to this comedy.
DAX 100+points on Wed, a b/even (+30) on Friday, again another nothing week but we are ahead by a fair margin and not bothered about this as it’s a sideshow to our options bread and butter (vegan spread) trading. And so to…..
Legacy Trades and 223 Expiry Roller Coaster
220 A New Expiry-June
Open Interest Anomoly Trade -this is fun. The OI for puts is greatest at 6200, and for calls 7300. So,let’s go long both sides and SELL at these strikes ( 12, 9.5) and BUY nearer the money, at 6400(18) and 7225 (21.5). We are creating a short iron something. (Sloppy condor?) Thus we are buying these unlikely looking spreads.
So, our debit 18 -that is our max risk.
Now…..
6400 put=3.5 7225 call= 11. ( shorts 7300 call 4, 6200 put=2.5) UGH! Terrible- LOSER
This week, possible 6 to close out – LOSER!
221 crazy ratio calendar
We are selling 1xJuly 6600 put and buying 4(four) June 6600 puts. Debit 7.5
now 6.5×4= 26,July 6600put= 32.5 One of the worst trades ever attempted. GOOD! We won’t do this again!
We could morph this by selling the 4 long puts at 26 and buying a July 6800/6600 put spread(55.5-32.5= 23) giving us a big put ratio spread, and enough left over to make it a low cost trade at 4.5.
Now 31 and 18= 5 Debit, not too shabby, it owes us the 4.5 debit too
222 Something more traditional…….. as if!
So, we speculated that a vol spike is coming
Here’s a strangle with a protective put spread, or put another way a put spread financed by a strangle. Max profit 50, risk at 6600 and 7250-actually ∞ !
We buy the June 7050/7000 put spread 60-44=16 We sell the 6650 put and 7250 call both at 8= 16. Zero cost trade(margin req’d)
So- our long put spread is now 5 7250 call=6.5 the 6650 put= 1.5 We have a tiny loss 3
223 Expiry Week
A tad of latitude here-as we know that Vol drops on a Friday>80% of the time, we look to enter our trades by close on Thursday. Thus we have
2 choices: Zero cost 6950/6850 put ratio spread and 7200/7250 call ratio spread.
Psychotic choice: 7200/7100 put ratio debit 13, and 7000/7100 call ratio 27 debit. Total debit 40.
At close of play on Friday…….. 1. Zero cost trade puts -1 Zero cost calls +1.5
2. Psycho trade…. puts 28.5 a profit of 15.5 calls…… 23 a loss of 4 ( We paid 40 for this madness remember!)
We will have fun with these during expiry week but paying zero and expecting big ££££ is not a likely prospect. However we are here to educate, and maybe entertain.
