That Was The Week FTSE Went Nowhere
Here’s the last year’s weekly data https://uk.investing.com/indices/uk-100-historical-data and while there were one or two upsets only around 11 weeks saw a change of 2% or more. However we(I) tend to react to the current daily situation, and fail to see it in the wider context. Tuesday is a case in point as the charts show.
Wednesday, and CBOE gave us a presentation on 35 years of options index performance. So why does this interest us? Here’s one slide and it’s thought provoking, but needs to be put in context.
Eagle-eyed readers will note the actual lack of skew with calls -when 20% out-of-the-money they are only skewed( more expensive that they should be) 15% against the puts– a whopping 37.9%. A patient trader might want to look at buying put vertical or calendar spreads deeply OTM (and far dated )because when that profit bus arrives, it’s a lottery win. Bear in mind this is just skewness you can see prices go up ten fold with a decent market drop. Flip this and look at the 2020 line and if you’d sold puts when volatility was so maxxed out. Your theta would have been very rewarding. We know this is nothing new but it’s worth bearing in mind the relative pricing of any trade.
A Sept 6000 put is trading at 21.5. Is it cheap, fair value or expensive? Context is everything. Oh and the real techy ‘white paper’ stuff can be found here, https://www.cboe.com/education/research/
America Celebrates the Recovery
Joe Biden’s America has declared that GDP has grown by 6.5% annualised last quarter. We do not see growth numbers remotely as fabulous for the UK.
Economics aside let’s hope we are recovering in every way. Space travel, carbon neutral power, jet powered motor bikes- the tech future is bright,and the US has the lead.
Sometimes We Forget
Not everyone has the same knowledge that we have gained over the years so here are some of our much loved helpful links:
https://uk.investing.com/indices/uk-100-historical-data
http://www.forexfactory.com/calendar.php
https://www.tastytrade.com/tt/
http://io9.gizmodo.com/5974468/the-most-common-cognitive-biases-that-prevent-you-from-being-rational
http://www.21stcenturyinvestoreducation.com/page/tce/courses/course-201/?sid=6236057324.13220045
https://www.theice.com/marketdata/reports/265
So have a rummage and enjoy the journey. Thus our learning never stops and it’s fun!
Distraction Trades -One of ‘Those’ Weeks
DAX– ugh! Mon and Wed 2 entries one break even one loss. We have had a bad run recently -and again 3 days with no entries yet the index had taken off in its direction of choice.
XRP/USD -Huzzah! A bounce back from the recent low $0.52 to $0.75 though I take no comfort in seeing a $75 loss That’s a bit of a dent in a chap’s annual cigar allowance!
Legacy Trade and 229 Looking for a Magical Entry
228 We Might Get Conservative – oh wait. We’re not Political
Chart watchers may differ but the FTSE, to this idiot looks weak. Covid seems to be finding new ways to make mischief and the market is still toppy. FT quotes PER19.9%
Here’s a dabble with a pitchfork-sell a deep ITM call and 3xputs at the same strike
We haven’t tried this in a while and frankly the put vol is pathetic at 16%. Theta is massive but our overall deltas are curiously 0.20. Margin will be brutal but this might give us a quick reward, while risk is modest though it looks a little crazy.
Best we could do? On Wednesday the trade made 7!
Trade 229 The Open Interest Gambit
Open interest-we all know what it is, right? As it implies it is the place where the most options are currently live. So for us this will be the Aug 7200 call weighing in at OI = 15,225 price 8.5 and the Aug 6700 put OI=9,619 and price 31. Purely under the rationale that the most options sold are at these strikes, we will concoct a ratio strangle. We sell 3xcalls and 1xput as the premiums are so out of whack. So our credit is 3×8.5 plus 31 = 56.5
STOP! Had we placed this on Thursday 29th we would have received 14 for calls and 24 for puts on the basis that Vol shrinks on a Friday,80% of the time. However, this was not the case this week does it still augur well for a nice profit? We’ll watch both scenarios but: this is not a well thought out trade, it’s food for thought. (We’d sell 2 calls for each put.)
