That Was The Week We Actually Saw a Move Down, And VIX Spike
We know that about 80% of the time Friday sees a drop in volatility, so this Friday’s (US) afternoon spike may presage more down moves to come next week. I am not giving trading advice -just an opinion. Covid stats remain shocking but that’s no surprise given the maskless culture. Traders we are, but with a weather eye on the bigger picture.
Recently, some of my quirky crystal ball/tea leaves type forecasts suggest a skew towards the number of up days versus down days which was skewed by +20. Does this make any sense? Well, yes and no. Given that historically it was reckoned 51% of trading days would be up days so when it gets several %age points out of wack it gets my attention. Roulette players may count the incidence of red/black and gamble accordingly. I think there is some correlation here but roulette wheel spins are not finite. The number of trading days is. I thus should have at least a 50% chance of being right!
Our Personal Trading Journeys
So many times I have said ‘Exit is everything ‘ and this week was another salutory lesson. Lessons are valuable when the student learns, and this idiot is still a ‘trading toddler’. A combination trade placed on Monday when FTSE was 7187 for a credit would have made 60 on Thursday. Toddler trader closed out on Tuesday making 11! So, why did I choose to do this? Personality can be our weakness and fear of losing when having such a great track record, sometimes forces me out of trades. Profit comes a poor second to preserving capital.
1995 was really a wake up to options for me and that hot summer was when I first turned my attention away from a (most likely) doomed music related venture in Africa. My first trade was in 1999. A covered call on VOD. Anxiety kicked in and I placed and cancelled the trade 3 times. Schwab, my broker at that time was open for placing trades on Saturday and Sunday. This was on a Sunday and my palms were clammy, sleep came fitfully at best,that Sunday night. That trade made 25% when VOD made about 100%! Amateurs seem to start with covered calls, and though they are effectively risk free, they are awful.
That experience changed me forever. I’d become an options trader. Then it got interesting.
Distraction Trades
Dax……… oh dear, our system is now in disarray: one loser one small win, three no entries. Market character has changed
XRP Hit $1.41 and now $1.101 This punter(for it is a punt) is not buying when it’s >$1 It’s still the Wild West for me.
Legacy Trades and 234
Trade 232 Broken Wing Condor
In fact it’s a one winged condor! We are buying the 7150 call, selling the 7200 call AND selling the 7250 call.
Risk…… unlimited minus the long 7150/7200 call spread (not normally recommended, but of course you can roll up,down and along)
Logic of the trade, the market has double topped around 7220 and the bear/bull argument seems to be in balance. No downside risk and tiny credit 2.5 Just one quirk- look at the volatility -that’s not a smile, that’s a grimace. Now a CREDIT of 3.5 to close out…..rivetting
Last week credit of 7 to close out – now? ….2 –We run to expiry it may get spicy
Trade 233 Something Bonkers? No- A jade Lizard.
Market expectations- nothing too radical, job numbers are ok, no sign of the FED taking away the punch bowl.
So we have a Jade Lizard sell 7150 call 64.5 buy 7200 call 39.5 gives us 25, then sell the 6900 put for 26 Our credit is 51.
We have no upside risk but downside risk at 6849
While this is a bit of a strangle it does optimise the call side. We could do something like 7000/6950 put ratio spread- ie buy the 7000 sell 2 of the 6950s for credit of 23.5.
Last week- 24.5 and 19= 43.5 now.…….. 5 and 20 – we could close out here, but for fun take it to expiry. The ratio variation 5+ (58-43.5 x2)= 29 total 34
So the simple short put did better- we run both of course.
Trade 234
Just check out the numbers on this screenshot- how can we trade this?
Due to huge volumes on the US exchanges, their spreads are minuscule -we need to decipher what the heck is going on here. Clearly nobody is sticking their neck out until a clown like me starts to offer trades. We invite market makers to take a view and ask for the middle way, with a bit of a cheeky bias in our favour.
Alright- expiry week and an old theme revisited- the open interest trade, whereby we sell where the largest OI is outside of the money. This week it’s 7200 calls at 4.5 and 6800 puts at 11. Will that elevated VIX have come too late in the day to make these prices agreeable?
