That Was The Week
Expiry games:
Clearly the 7400 level was key as both sides were eager to get there- those who may have been short calls and puts. Settlement price is reached after 10:15 and it’s plain to see a huge buying spike-was it another re-run of the ‘alleged’ BP ramp? Buying BP stock(478-486) as a cheap way to get the index to that 7400 where much of the open interest was? We couldn’t possibly comment, but it’s the market we are happy to engage with.
Salutory lesson each expiry: Try not to close out too soon. Your intrepid author gets very ‘trepid’ when it comes to losing profits. So, a position that was in profit to the tune of 27 on Monday, was not closed out then.(Heroic restraint!) Tuesday….. itchy trigger finger, closed out for 32, a very healthy return, but was it the optimum? Fast forward Wed- 45, Thursday 65. To quote Fisher Black (Black Scholes Merton formula fame) ‘What’s to do at expiry,? Place your head between your knees and hang on to your b*lls!’ Friday, at expiry, the trade would have been worth 50. It could have hit the max 100 but was not looking likely. Doing ok is better than ok and no point in self flagellation, well not in trading. Note to self: Keep it in your pocket until Wednesday next expiry!
Distraction Trades
ADA $0.324 Crypto seems to be at a low ebb still after FTX blew up- as reported last week.
XRP $0.38146
DAX 4 no entries 1 win/ break even 30 so the system keeps us out of potential losing trades, and it did look as if the 4 no entries would have been losers.
LegacyTrades 289, 290,291, 292 and 293 Dec Expiry, and the Santa Rally
Again let’s try and break something! We will have a slow burn, an iron butterfly. We buy protective call at 7050 (105) and protective put (102) at 6850- because we are selling the 6950 call and put 156 and 139.5 gives us 88.5, max profit, max possible loss 100-88.5= 11.5
Previous week- those prices at 6950 159+75, then the put at 6850 48, the call at 7050 99.5 gives us 86.5
Last week – yikes- the 6950 straddle 409.5 and 9.5 the 7050 call 315.5 and the 6850 put 6 -so 97.5 – Losing big.(9)
LOSER The trade could only lose 13.5 and that is precisely what it did.
Trade 290 That ‘New’ Strategy We claim no authorship of this but we will have fun seeing how it pans out.
This trade is a call spread risk reversal. Now a ‘risk reversal’ is a synthetic ie it mimics a future or another underlying instrument. You would sell a put to buy a call. In our example we sell a put to buy a call spread
Here’s the trade. We buy Nov 7000 call for 127.5 and sell the 7050 call for 99.5. This therefore, costs us 28. To pay for this we sell the 6725 put for 27.5.
As you can see we had zero risk to the upside but a max profit of 49.5 -nice! However, we have a naked put which may need to be adjusted.
This week 7000 call362 7050 call 315.5 6725 put 4 Gives us 46.5, the value of the call spread, minus 4 for the short put= 42.5. Close out and WIN!
NB It would have made the max 50
Trade 291 Is this Meltup Sustainable?-This idiot hopes not.
We are placing a ratio spread buying one7450 call,(41) selling two 7500 calls. (27) ( November expiry)
So, the logic of the trade- we take in a credit (27×2)-41 =13 with zero downside risk. However, a possible max gain from the spread if FTSE hits 7500 at expiry of a further 50. Risk at 7550.
Now- this has gone well 12.5 and 6.5 x2 so a cost of 0.5 to close out but let’s run to expiry WIN!
Running to expiry was not a good idea
Trade 292 as Vol drops to the floor
Let’s have a little put ladder( Nov expiry) we are buying the 7300 put for 40.5, selling the 7250 for 24 and selling the 7200 for 14. We have risk at 7150 and theta is a big help. Our cost is 40.5- (24+14) =2.5 Max reward? 50
Remember Friday 18th is expiry and it could be a monster…
Best we could do 4.5 Let’s call it a scrub.
Trade 293 New Expiry
Pity we could not find a nice calendar trade to give us some long options but we have a clean sheet.
We can be long and short here with a call ratio spread for a ha’penny. We buy the Dec 7500 call for 58.5 and sell 2 of the 7600 calls for 29(x2)= 58
In anticipation of the Santa rally -we could make the max 100 with FTSE at 7600, we have risk at 7700. We have NO downside risk
Remember: If you have any questions about the trades here, please email us at: [email protected]
