That Was The Week We Should Have Expected.
Too much to take in. The Royal funeral half the world watched. Wet lettuces at BofE coudn’t step up and give the bigger rise. Sterling tanks, not just against the $dollar but also against the €uro. Having a connection with India we also look at the Indian Rupee which in April was 104 to the pound. Now? 88. It’s worth remembering what a dynamic young demographic India has. China and India had empires while we were still in the mud in the UK.
The Budget and Recession
There are words, but it would be frivolous to comment on economics, when we trade the FTSE100. You are well aware it is comprised of many global companies. However the recession is thought to be global, but our government want to get ahead of the game and boost something they call ‘growth’.
https://youtu.be/YFQBEhx8Zxs?t=93 This esteemed gent Charlie Bilello has some views on the longer term. Certainly the returns of 2020, had you bought in at the low would have been staggering. Personally I made zip in that year. Markets are distinct and separate. His bewildering chart showing S&P returns versus high Vix makes a case for longer term optimism. High risk means quicker return to profit.
Here’s what Larry has to say https://www.optionstrategist.com/blog/2022/09/construct-volatility-derivatives-has-moved-vulnerable-state
Distraction Trades
ADA $0.4627
XRP $0.49427 moved ahead of ADA anyone know why? I have lost the plot with crypto, apologies.
DAX 1 win 200, 1 loss 30, 3 no entries the system being based on trading only the 08:00 timestamp is chugging along, boring as ever.
Trade 284, 285 as Vix gets scary. September has a certain reputation.
Trade 284
Let’s take a look at an old staple- the ratio spread. We buy a higher strike put then sell two or more further out-of-the-money puts. As we have a legacy 7200 put from Trade 283 let’s use that and so we have 2 scenarios: We carry on with our free put, and sell 2 of the 6950 puts or we just open this as a new trade 144.5 – (2×73.5) A tiny credit to enter, or we are banking 177 as a continuation of trade 283.
Where’s the risk? We’d get a bit fidgety at 6700 and if the market lifts off again we may bank only a modest profit, but we have 2 lots of time decay versus one.
This week. Yowser!!!!!
The 6950 puts are now 140 , the 7200 put is 268.5 . So, we have a loss currently (140×2= 280) Gives us a debit 11.5
Cut losses and move on? The eternal question- whither the market? We don’t know but let’s take a pragmatic look, bring on the Greeks:
Those Deltas 41×2- 64= 18. So at £10 a point for every 1 point the FTSE moves against us, costs £1.80, but that is an oversimplification, gamma, theta and vega will all need to be factored in, so by close of play on monday we may see a little buying coming in. Thus, we may see our position go positive. Rho can chill for the time being! ( Yes I got the interest rate wrong but it’s really academic) Calculator from CME https://www.cmegroup.com/tools-information/quikstrike/options-calculator.html?utm_source=LINKEDIN_COMPANY
Trade 285, Ladder Time
Juicy premiums, yes, but again let calmer heads prevail and we can connect with Trade 284 by buying the 6700 put which creates a 7200/6950/6700 butterfly. But we don’t want to pay 69.5 for that 6700 put so we will finance it by selling 2x 6500 puts. We take in 80, giving us 11.5 credit. Now our risk is lowered to 6500 but we are in a 2×1 ratio, we are short 2 puts. We could also have looked at a strangle: selling a 7350 call (35.5)and a 6700 put (40) We would have upside risk >7350 but if the market did shoot up again, we could take some profits from the put position. This is going to be fun running to expiry with updates along the way. Hope everyone’s keeping up, but to summarise:
Long 7200 put and 6700 put. Short 6950 put x2, 6500 putx2 (or 6500 putx1, 7350callx1)
Let’s hope that the damage is limited, it’s no fun seeing others suffer a big drop.
