That Was The Week, More Downside, Until Friday
We can never be sure when good news is good news. Bad news is good news, that much is certain! So America’s job numbers came in strong but we knew that from ADP on Wednesday. Quite why non farms should create another meltup seems bizarre. See here Wednesday’s bangin’ job numbers: https://www.forexfactory.com/calendar Surely this opens the door for more rate hikes as unemployment is at record lows and job vacancies are plentiful. Not what you’d expect in a recession.
FTSE PER, according to the FT just smashed up from 12 to 15.37. That’s a rise of 28% or in other words, that cheap FTSE just became 28% more expensive. You have to love the world of fundamentals, and to date nobody has offered a coherent explanation as to how this is to be interpreted. We see oil companies raking it in, so what’s really going on? I can only assume that buyers got a little too excited. New money came in for the start of the month, then cold feet,followed by a big old hoik skywards on Friday. My up day/down day count is at 53 up 33 down, so I’m sitting tight on bearish positions. Ignore me, I’m never right!
More Webinars! Larry McMillan’s Trusted Resources
Don’t be that guy, (or me!) looking to confirm your own bias. This chart is from a webinar 27th April. Curiously we are at exactly the same level as when he called ‘sell’. He has another event on 8th May, and here’s the link: https://mailchi.mp/optionstrategist/join-larry-mcmillan-for-the-metastock-online-traders-conference-feb-2657431?e=5f15d5ff5d
He’s a smart guy and has a good track record in options trading, but he makes some claims based on his own research that you may find useful if a little counter intuitive. FWIW I tend to think the put/call ratio is not forward looking, but of course nothing like this is available for FTSE. We hang off the coat tails of the S&P500. However, it’s good to see things through other people’s viewfinder, then decide to use it or lose it.
Distraction Trades
ADA $0.3772
XRP $0.45395 Not inspired by the moribund crypto’s again, though maybe time for a cheap punt? There is no way to quantify of course with standard metrics.
DAX Oh dear! 3 (three) no entries, one break even(+30) one loser(-30). Jim Mellon suggest being long Japanese Yen, so maybe look for long only trades against USD? A quick look says Nooooo!
Legacy Trades 313, 314 and a Spicy 315
313 We Try to Break That Losing Streak( We did Warn Those Trades Might Get Ugly)
As you’re aware, this is not about bragging rights, it’s about learning.We have extensive runs of wins and statistically we were due a run of losers. It’s a ‘cheap’ market, with no expectation of a big drop. However, we can maybe find a trade that is not a horrible loser! We find a long put spread 7850/7750 and a way to pay for it with a 7600 put. This gave us 70-46= 24 the cost of the spread, and we sell the 7600 put for 27, giving us a credit of 3. Thus, the trade can make a max 100+3, and is safe all the way down to 7500. There is of course, no risk to the upside(makes a change!)
Last week:
7850 put– 74 7750 put 44. the 7600 put 22.5. Gives us a little profit 30-22.5=7.5+ our 3 credit.Gives us 10.5 so far
This week
7850 put 107.5, 7750 put 56, the 7600 put 23 gives us 51.5-23=28.5+3 A profit of 31.5 WIN! Close out? In short, yes we would, but let’s run it to expiry
Trade 314 -When There’s no Vol
This is one of those times when trade selection is limited by volatility. What we can do with options, is take advantage of time decay(Theta). We can sell options but vol means risk is heightened,and the upside may again be a problem. Unusual but practical, let’s go with a rare foray: naked. We can place a strangle with May options and 21 days to expiry. Frankly I just like the round numbers, so this may not go well! We sell both of these as it seems that they are at strong support and resistance. 8000 call 15.5 and 7500 put 15.5 . Credit 31 means we break even at 8031 and 7469. The market has been kind and we now see the 7500 put for 14 and the 8000 call at 3
Close out! We make a healthy near 50% in a week. 31-17=14 That’s 45% WIN Again we will run it to expiry for educational purposes.
Trade 315 Calendar Time -Shall We Get Spicy?
So, the principle here is that time decay works faster for options as they near expiry. We can take advantage of this by selling the May options and as protection we buy the June options. We can sell 1 in May, or 2 or 3 against 1 in June. Of course you can use any numbers you like, and if you’re charlie big potatoes you might sell 20-30 May options against 5-15 June options that you buy. Scale is relative to account size, and yours truly never goes all in. I like to survive, to trade every month rather than go for the big prize. So here’s what we’re going to do. Sell 3x May 7500 puts, buy 1 June 7550 put. 
Note: Deltas are not so spicy at 11×3 =33 against 25. Theta : 5.05 against 1.4471 =3.6 Gamma 24 against 8, but not too crazy, with vega not so crazy against us either. We have 2 weeks to get our b*tts handed to us!
For those new to options:
https://optionsinvesting.co.uk/special-edition-how-options-work-1/
https://optionsinvesting.co.uk/special-edition-how-options-work-2/
https://optionsinvesting.co.uk/how-options-work-page-3/
Contact: [email protected] If there is anything you’d like help with, we all started somewhere and yes, it can be baffling.
The cost of trade 315 = 60.5 minus 14×3=18.5. I had hoped the graphic was clear enough to see prices and wanted to bring people’s attention to the calculation, in order to understand how strategies like this work. Being biased with deltas is ok if you intend to be directional, but it’s always worth keeping an eye out so you are not horribly skewed one way or another.