282 w/e02Sept Going Straddle Crazy

That Was The Week -Two Crazy Days

Our glorious index slumped 2% on Thursday and smashed up 2% Friday. Traders, like us may have had a neutral stance but there was a pre-emptive trade, which we can only show retrospectively. A new month often heralds an inflow of cash into pension funds, so who knows what was going on? Pension fund managers maybe hit the wrong button on Thursday!

Chart watchers may note that VIX was again contrary, but daily moves are only relevant within the wider context of the range. Vix currently is bumping along well above the 20 mark. Markets may have factored in the impending recession, inflation, conflict and the climate emergency. They would idly boast they know what they are doing. Daily moves, however, are not much of a concern when we trade within an expiry cycle or two.

The Interesting Stuff

This week threw up some good stuff, notably https://www.quantifiedstrategies.com/nassim-taleb-strategy/ Curiously the next link is from Tom Sosnoff who I regard highly, but who rubbished Taleb on Twitter. No wise person does that so I guess it was an error of judgement, but here’s Tom’s wisdom:  https://johnlothiannews.com/mwe-short-tom-sosnoff-change-the-game/

Both of them make good points, both have made money trading, so we salute them. We’re all on the same bus

Distraction Trades andsome Grim Reading

ADA $0.4772  Modest gain

XRP $0.3295  Drifting and, out of favour?

DAX  3 no entries and 2 losers. Stop loss is 30, so that is a poor performance, but nearly every week it is in profit.

Legacy and Trade 282

Trade281 That wide ‘fly

Interesting action between the US and UK markets but you get the idea. So, is the drop overdone? There’s a big up bar at end of day, and we know of a strategy that buys at the close and sells at the open, profitably long term. The reverse of that loses money-who knew? More to the point who even does that?

Here’s our trade, a large butterfly buying the Sept 7350 put, selling 2 7150 puts and buying one 6950 put.  Those prices: 81.5,38,19  gives us 100.5- (38×2) =76 thus: 24.5  Risk is limited to premium paid. However we will do this with a twist, and do some adjustments on the way so it’s not totally boring. These may be mid-week and we’ll try to keep you posted.(Sorry this did not happen in real time)

Here’s what we saw:

Thursday’s big drop made the 6950 put worth 54.5 and the remaining parts 7350, and short 7150 x2, for zero. Close out the whole deal? OK- nice profit 30. WIN! But wait….. sell that 6950 put and buy it back next day for 17.5. Nice profit 27 WIN! But here’s the kicker- we are still in the same bulletproof trade and it costs us minus 2.5  Still on board? Oh yes, and we saved a bundle on commissions. 

Trade 282 Variation of a Crazy Trade  

We have, in the past, featured a trade that used straddles –buying 3 near month and selling 2 next month. You may recall it was rubbish last time.So, why do it now? Quite simply as the prices are so far apart we can buy 2 near month and sell 1 next month. We get the moves without the price, if the market moves either way. Theta is brutal but gamma is our ally.

So, our near month purchase 185.5×2=371. Our far month sale 368.5  Gamma is monster  so one good day is all we need, while our premiums melt away if we hold for too long.