That Was The Week Hot Air Was The Hot Topic
Cop-26, Guy Fawkes and a lot of protests. Markets rose with the US of course hitting the new highs. So, for no good reason, time for us to reflect and get a bit of historical perspective from Jan 2003. S&P500 was 831, it’s now 4692. FTSE100? By comparison was 3601 in 2003 and now 7303. Step up maths prodigies. Our computations tell us FTSE has doubled while S&P has risen by 5.6times. Thus, even factoring in forex changes (£ was $1.65, now £=$1.35) you’d be so far ahead simply buying the S&P500. Some may say there’s little point investing in the UK, so while our epithet is ‘options investing’, we are in fact, traders.
Of course there are many factors but mainly the FAANGs, MSFT and latterly Tesla. We don’t shine, we are plodders, often late to the game. However we have some great innovators but the US is the great entrepreneur. You thought China was the big Kahuna? Nope- the SHCOMP (Shangai composite) has risen from only 1069-3492. Funny old world innit?
Bias and Comfirmation biases
Here we resurrect an old chestnut: https://gizmodo.com/the-12-cognitive-biases-that-prevent-you-from-being-rat-5974468
Typically, this dumb cynic never believes good news. Jobs? Maybe the numbers are good but look at the economically inactive numbers. That’s me!
Now I will always recommend free content and regulars here know I like the words of Van Tharp. So, when this dropped into my emails I felt duty bound to share. https://trading.vantharp.com/view.html?x=a62e&m=8f&mc=f&s=egAm&u=J&z=ve3Qgbe&pt=view
Scroll down to the good stuff- the date you won’t see in too many other places. Of course I like the debt clock best-it’s my ‘go-to’ when people say things are on the up. It doesn’t matter. Debt has not mattered for well over 2 decades, so will that ever change? Are debt ceilings of any merit? Of course on a personal basis we all have a debt ceiling, our online banking tells us our credit limits and it’s simple fact. There’s good debt, personal debt( for which we are accountable) then there’s debt that national governments simply ignore. When your political life is subject to the whims of the electorate, it’s not like you need to take responsibility in the same way we do with our own lives. Nobody is hounding Dubya for the massive debt pile he created. Oh enough politics.
Distraction Trades
DAX: 3 losses one no-entry, one win. A loss =30 a win is 100+. Another grim week and the no-entry was a huge move.
XRPUSD Again no clear trade entry and it hit and exceeded our exit at $1.18 now $1.13 and should we mention Shiba Inu?
We need some fun unrelated instruments. Suggestions anyone?
Legacy trades and 242 Nuts to the Rules!
Trade 239 Nov Expiry
Jade Lizard anyone? OK let’s go with: selling the 7300/7350 call spread and a naked 6900 put. 56.5-37= 19.5 for the call spread and 30.5 for the put. Maths PhDs will know that this equals a credit of 50. Risk of loss is therefore at 6850
Was 22.5+ (35.5-20.5)=37.5 We could have closed out and made 12.5 or £125 on about £3000 on margin= 4%(annualised that’s 200% )
So, the call spread is 55-31.5 The put is 5.5 Giving us 29 debit – remember we took in 50 We run it but would be comfortable taking 21 profit
Trade240 Big Spender
Yikes! Again with this drifting moribund volatility (makes me laugh when the ‘experts’ talk about this volatile market, when they are selling something!) Fact is: Vol is low. Here’s some Greeks.
We sold the Oct 7000 put and 7300 call, taking in 69, we then had to pay 92.5 to buy the far month(Dec) same strikes. Frankly, looking at a diagonal ( selling further out of the money) would be crazy money. We remain unconvinced and may come back to compare this with a diagonal. It’s all a bit pricey for us.
Now……. OCT 26+44.5 Nov 66+88.5 = 84 Not a happy trade but should we double down?
This trader found it worrying that vol is lower for the Dec put
Guess what? It’s still 85! 2 Weeks on and it’s just losing money -trade selection needs the Greeks to line up and here they just don’t.
Trade 241 Seeking Value When Vol Stinks!
Forlorn hope, it seems. A put ratio spread. We buy the nearer the money strike and sell a number of options further out. We go with a simple 1×2 here, buying the 7100 and selling 2×6950 puts for Nov expiry. Prices 40.5 and 21(x2) Our trade gives us a tiny credit therefore of 1.5 Now it’s 0.5 to close -so a huge win, trebling our credit- 300% …. Kidding! It’s a nothing trade.Moreover it’s not a great use of margin, as of course we have sold more puts than we bought.
Trade 242 Pitchfork Without Rules
We try this trade which comprise usually a short call and 3 short puts at the same strike, but entry has strict criteria and this doesn’t. So the 7200 strike gives us the call 124.5 and puts 29.5×3 Should FTSE expire at 7200 we keep the whole 213 and we win if expiry is within 7412 and 6988
Makes you think doesn’t it? Should we bet the farm on this? We’ve seen the so-called safe calendar trades do nothing but cause us anxiety, when this looks like fun.
Correction! downside risk is at 7130
