320 w/e 09jun VIX Drops Yet Again

That Was The Week The S&P is Officially in a Bull Market, The EU’s in Recession!

Vix hit another low and the commentators gave us this:

The irony! We love that the financial industry loves to bandy about the ‘V’ word. Mechanics generally avail us of that sucking in of air, through pursed lips when discussing our car’s ‘desperate state‘. However the Vix at new lows can often herald a Vix rise. https://www.optionstrategist.com/weekly-charts While the chart does not say sell in terms of the put/call ratio it is very bullish, and we like to be contrarian.(Thanks to Larry McMillan again). Put buyers may be picking up some bargains with longer time horizons. We continue to be amazed at the lack of sophistication with long only funds who have no ‘insurance’. While they crowed about the recent NVIDIA rise, they were somewhat quieter about the almost 50% drop last October. We’d guess that triggered a lot of funds closing out. How much better could they do with a bit of Put insurance?

Data Hounds

CBOE have some handy data if we think there is still  a good correlation between FTSE and US indices. We sometimes wonder,  have a play via the link: https://www.cboe.com/us/options/market_statistics/daily/?dt=2023-06-05  It’s a pity we have nothing like this for the UK

While data is always worthy of some attention, there is much to be gained from being discretionary, and sometimes ‘gut’ serves us very well. Yours truly closed out a very profitable trade on Thursday, knowing I would be out in London on Friday. I have predicted it would be even more profitable by waiting until next week. I will beat myself up over this as that is in my nature! Gut, however served me well in that trade, as it has with our current trades here. Early exit is just one of those things.

Distraction Trades

ADA $0.2445 Oh dear it really has lost its appeal while Ripple plods along

XRP $0.4927

DAX  Weird week again with one win +90 and 4 no entries.

This is left field but as as part of a balanced portfolio we should have bonds and here’s  U.K. Gilt UCITS ETF (VGOV) It’s £16.60 from an all time high of £26.75

Legacy Trades in Low Vol Times and 320

Trade 317 It Was A New Expiry Month

A homage to Liz and Jenny once more as we borrow from the esteemed Tasty Traders, the strategy known as the Jade Lizard. This trade has no upside risk, as we perceive the danger may lie that way. June expiry. We sell a call spread: Sell the 7800 call for 68.5 and buy the 7850 call for 45. We sell the 7550 put for 27.5.  Maths scholars will note the call spread credits us with 23.5, add this to the credit for the put we sold, gives us 51. Figured out the upside potential loss?  It’s the value of the call spread,which is 50. Downside risk at 7550 minus the credit 51= 7499

Last week: So, the drop was unexpected but we now have 53.5 for the 7550 put and 7.5  for the call spread. Gives us: 61, a loss of 10. I had messaged during the week about my concerns and possible adjustments, then this appeared somewhere in my ‘net travels:

To quote from last 2 weeks:  Adjustment should not be a knee jerk, we need a plan. So where are we?  5, 2.5  gives us 2.5 for the  7800/7850 call spread and  35 for the 7550 put. The trade was tenuously in profit and it might make sense to close out the call spread, as it’s only 2.5 but let’s keep it straight.

This week- looking fine: the call spread is 2-1.5= 0.5 and the 7550 put is 35.5, so we’re in profit 51-36= 15 -it’s not over yet.

Trade 318 Time for One of Our Hybrids

We are going to sell a put in the June series and buy a put spread in the July series. June 7400 put 28.5 July 7550 put 101 and the 7400 put is 70. So we pay 101 for the 7550 put and for the 2 puts we sell, we get 70+28.5= 98.5. 101-98.5= 2.5 so that is our cost. We are short at 7400 in June and July, but long the 7550 put in July. The logic of the trade is that we will have a ‘free’ put spread for July, so long as June expiry is above 7400. We have risk at 7400-150(the value of the put spread). This means we have risk of loss at 7250. Max reward is 150 minus our cost 2.5. 

We had  for the July put spread 49.5 and 80.5,=31  minus 2.5 that we paid and 13.5 for the 7400 put . Thus we have a profit of 15 but we run to expiry.

Nice- we are now in profit to the tune of 29.5- our cost 2.5= 27 (July spread 87.5-49.5), The Jun7400 put 8.5. Run to expiry 

Trade319 A Comparison

Here’s a quote I picked up this week: ‘Comparison is a thief of joy’ while that might apply in everyday life, it’s interesting in our trading. As regulars know, we DON’T like the butterfly trade but in this market we don’t have any clues though the 7600  level may be a magnet. Or a figment of our imagination.

 

So, we are creating a butterfly and using 7600 as our centre.  Buy the 7500 call, sell 2 x 7600 calls and buy the 7700call. Prices: 144, 70(x2) and 23 gives: 27 For the puts buy the 7700put  sell 2×7600 and buy the 7500 put. Gives us 103.5, 50.5×2, 25, gives: 27.5 .We will be interested to see how market action/inaction affects the two.The joys of comparison, but with the same levels will there be a difference? We hit the jackpot at 7600, but a wild card-the 7850 butterfly (7850/7750/7650) is a meagre 13.5 to buy. NB A butterfly has zero risk beyond the premium paid as it is a long spread versus a short spread of equal max value.

Here goes: Calls 85.5, 25.5(x2),5.5 gives us 40. Puts: 140.5,60.5(x2).20.5 gives us ….40 

Wildcard 7850 ‘fly : 286, 187.5(x2),96.5 gives us 7.5. And THIS is why we don’t like butterflies much, you have to get your strike levels right. So, as  we said the 7600 level seems to be a magnet, but that is not carved in stone.

Trade 320 Bonkers and Irrational, but It Might Work.

We are selling ITM(in-the money-) strangle(also knows a a GUTS) in the June series.The 7650 put and 7450 call have intrinsic value of 200, the actual value 96.5 and 127.5 =224. We expect the intrinsic value of the sold options to be 200 at expiry.This may also be a trade that works well in reverse. It’s a departure and has some risk if we go outside 7450-7650.  A very seasoned broker once told me he didn’t know why anyone would trade a GUTS. We’ll find out!

For those new to options:

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Contact: [email protected]   If there is anything you’d like help with, we all started somewhere and yes, it can be baffling.