That Was The Week- Disaster Strikes.
Your well intentioned author finds a market plummeting with no prior warning. These exogenous events happen and we live in extraordinary times relative to the past 30 years. £85 billion wiped off the LSE. There is no acounting for these events but with options we should always be able to adjust. Our first Dec expiry trade has a naked put and when VIX explodes, as shown above it turns a modest credit into an ugly loss. We don’t advocate naked as stressed here many times, but the trades are for education only, and Liz and Jenny from Tasty Trade designed this strategy for a sideways/modestly up market as we have seen.
Content Sadly Depleted -Distraction Trades
Sorry, but this week’s missive will be brief due to personal circumstances.
ADA- Cardano- now $1.55 – paid $2.35 so a massive 35% loss– or a buying opportunity?
XRP now $0.96 might start to get interesting as another long term buy
DAX- Nothing to report
Legacy Trades and 245
Trade 244 Dec Expiry but Is Santa Languishing in Bed Nursing Ills?
So it’s December expiry and we have 4 weeks –20 trading days to exploit.
This time we try the ‘Big Lizard’ – a variation on the Jade Lizard, whereby we sell an ATM call spread and ATM put.
This gives us( 7200 strike for convenience) 7200/7300 call spread 116.5-61.5=55 and the ATM 7200 put= 98.5. So this gives us a credit of 153.5. Therefore there is no upside risk, in fact it’s peachy if the FTSE goes to the Moon. Downside……. well we have a credit so 7200- 153.5= risk at 7046.5 . Here’s where it could get ugly and require an adjustment. The thinking is that all the positives and negatives are maybe slightly tilted upwards, seeing as Xmas is coming. We need FTSE >7050 to be safe,and that level may be at risk.
7200 put now 226 – we let it go for now as we have no idea where we are headed. We couldroll the put down to 6800 for 68, which puts us around the break even point. It’s anyone’s guess but the put has more than doubled.
The call spread is 65.5- 33= 22.5
Trade 245 – Vol Explosion means SELL!
The conventional wisdom says to SELL when vol explodes as it is always transitory- like inflation( We’re told)
Assume this is a short term outlier- again the wisdom is to sell the farm- and just for the sake of showing something, here’s a strangle: 7200 call for 65.5 and 6700 put for 61 -This would NOT, repeat NOT be one of our choices as we have a real unknown with omicron, the new variant. This post may come back to bite me. We should have greater concerns for the health of our fellow creatures right now. Stay safe, trade safe.
