309 W/e24 Mar. VIX Plummets Like a Bank

That Was The Week We Saw A Huge Swing and Back

The week’s trading range was a massive 380 points, 7205-7585. Trying to figure out the sentiment is not easy and while VIX is our guide, the US market is not master of all it surveys. At one point on Friday morning there were no options prices om FTSE and frankly, quoted spreads have been farcical. Market makers’ sentiment seems to say they are reluctant participants. We need ALL participants, that is what makes a market. Meanwhile:

To quote: ” don’t buy bank stocks, you never know what’s under the bonnet”. Now the spotlight has shifted to Deutsche bank, which I recall was sailing close to the wind some years ago. A certain well known trader had bought far dated €5 puts, which didn’t come to fruition. Somebody helped the bank go from Dodgy to Deutsche again. A business like Greggs, has seen its shares in 10 years, go from £3.50 to £26. Caveat: I believe there is regional pricing and deliciousness/warmth variability at play with the vegan sausage roll. Dastardly!

Interest Rates, And Valuations

Of course you all know the character Rho denotes option price sensitivity to interest rate change. Not a problem with our trading size, but as a market mover, it seems so much has changed. Back in 1989 we had 14% bank rate, 9% inflation and the FTSE barely wobbled. So the inverted pyramid of debt/assets would seem to be the answer. Too much free money, too much debt. You have to conclude that the stock market sensitiy to interest rates is a key driver, while valuations may take a back seat. Have a play with https://markets.ft.com/data/indices/tearsheet/summary?s=UKX.P:FSI FTSE now 12.05 from February’s nosebleed high 17.92. We could say that FTSE is cheap, if we see low debt, and good productivity then it’s cheap. If they are loaded to the gunwhales with debt, the repayments just got real. Direction is 40% of our modus operandi.

Distraction Trades

ADA $0.3581

XRP $0.4438 Some enthusiasm on the back of BTC, but we’re back in the doldrums.

DAX 2 no entries one loser -30, 2 wins, 50 and 180. The system missed a couple of whoppers. (Yes I know we need a new instrument in addition)

Trades 308 and 309 Up the Irons!

Trade 308 High Volatility- But WAS IT? The Pitchfork says YES!

Remember this is NOT our strategy but all power to its creator.

What is it? Oh you’ve forgotten. A trip through the archives will show we’ve used it before.(You do the search!) Here’s my understanding of the trade. You find the value of the ATM (7350) straddle 188.5 (calls)and 203.5(puts)= 392. Subtract that premium from the 7350, and it gives us the strike for our trade, but we always have a bit of wiggle room. So, we go with the 7000 level, which gives us premiums of 438.5(calls) and 3x 105 (puts) We SELL therefore, one call and three puts for a massive premium of 753.5 as you know in real terms this is a shedload of cash: £7535.00. Imagine FTSE expires on 21st April at 7000. We keep the bloomin’ lot. Now-do the hard yards (it’s not hard) and see where your risk is. It’s simply 4 options at same strike

Some choices: Run this further or take the juicy profits as we had: Mar 21st I ‘d said take 34 points- peachy, or run it to Friday 24th 453 and 51.5(x3)=607.5. We took in 753.5, so to close it would be 607.5 giving us a monster monster WIN! 146. As I closed out intra day on Monday I don’t know what the margin requirement would be but let’s say it was £10,000. You just made 14.6% in a week.

Trade 309 Sentiment =denial, let’s test that proposition. (I think we might see another plummet!)

We like the idea of….. oh wait. We don’t really like these things, but in view of the fact there’s no market moving news until Thursday, let’s see if FTSE vol will shrink further. And to save a bit of legwork here’s a nice explanation: https://www.optionsplaybook.com/option-strategies/iron-butterfly/

We choose the 7400 ATM strike and buy the wings at 7200(put and 7600(call). Gives us ( 147.5+144.5) – ( 85.5+48.5) = Credit 158. Worst outcome, the FTSE smashes either side of the wings- ie <7200 or >7600. We need a quick round turn. We need vol to drop off.