324 W/e 07July Big FTSE Drop Yet Small Vol

That Was The Week, FTSE dropped Big, Vol Moderately Higher.

Vix watchers saw a rise reflecting some of the action in the US. Non farm payrolls were very very wide of the ADP numbers, but it’s highly unreliable data anyway. Here’s a graphic from 2020-23 ADP(top) against Friday US Gov Non Farm Payrolls.

Coincidence seems less than one might expect, though the market seems unsure how to react. We are often thrown a curve by the bad news =good news and vice versa. However these are lagging indicators and good luck to anyone making sense of it all. Which brings us to another interesting metric from CME. https://www.cmegroup.com/market-data/cme-group-benchmark-administration/cme-group-volatility-indexes.html

This volatility measure, CVOL is explained here: https://www.cmegroup.com/newsletters/infocus/2023/06/the-week-in-focus.html

While VIX has been languorous (Google it!) this may presage much bigger numbers. I have personally had a losing battle trying to find any meaningful trades this last week. The numbers simply do not stack up, near month far month, even further dated, there is nothing that leaps off the page. Now I know options traders live for options chains and the numbers ‘speak to us’ but the last few weeks, in actuality have been a desert. We can ponder the reasons, complacency, too many sellers, too few market makers and brokers, possibly? By way of a caveat, I closed out my very successful July positions taking an excellent profit. But leaving 70% more out of a max profit. My area of concern is 7200 and I felt uncomfortable with FTSE getting near that level. My profit would have been wiped out at 7100

Is The UK A Different Animal?

The UK has many detractors and it is in our nature to talk ourselves down, myself included. We have strikes of all varieties and all kinds of issues and ‘sticky’ inflation.We will have higher interest rates and it seems others have conquered the inflation monster to a greater degreee than us. We trade FTSE which is a different animal from the US equivalent the S&P 500 which has a bunch of tech stocks that can explode, China Japan and Germany are all industrial behemoths, though we still have great industries here. Nissan and other car makers have done well, sad to see RR down at £1 in February but its’s up 50%. There may be room for more upside. Of course FTSE’s 100 or so constituents are a unique blend, but we see no reason to trade anything else, as profit is the aim.

Distraction Trades

ADA $0.2857

XRP $0.4676

DAX 3 no entries one win +120 one break even +30

UK Gilts: £16.11 down again from £16.52 -This is why I am NOT a good investor

Legacy 321-3 and 324 In this off kilter Market

Trade 321 in a flat low vol market- Yikes!

Let’s get spicy in this season of low volumes low volatility and low expectation of actually having a smart trade. Theta is not our friend so we look to take on more risk and sell more options than we buy. Here we sell 2x the near month, July strangle 7400 puts,(24) 7825 calls(24), and we buy one August strangle: 7400 puts (55.5) and 7825 calls (44.5) .Here’s the numbers: 55.5+44.5= 100 and 24+24 (x2)= 96. Our cost therefore is 4

Overall theta was around 1.92 and Deltas, we are not far off neutral. Risk – well it’s going to get ugly outside of our strikes. Hand on heart it’s not ideal but we always remind readers it’s about learning, winning is the cherry on the cake.

July put 7400 56, call 7825 4 August Put 7400 101.5 Call 7825 11.5 Gives us 56+4= 60 x2 =120 for July. August: 101.5+11.5=113. Last week it was in a loss 7

This week….peachy July call 3.5 put 22, Aug call 63 and the put 12 Gives us 75-58= 17 our cost was 4 remember. More time to go yet.

This week- Ouch! 1 and 157.5 (x2) for July strangle 2 and 207 for August A loss of 316-209= 107 -will the market recover?

Trade 322 Some Movement but Volatility Being Supressed

Again we can only use theta in this ludicrously low vol environment. It is a concern but if we take a real plummet, we will at least be able to morph/adjust/roll. The above calculation: https://www.cmegroup.com/tools-information/quikstrike/options-calculator.html?utm_source=LINKEDIN_COMPANY

We are doing another old chestnut, the put ratio spread. Buying the 7500 put and selling the 7350 put twice. Cost:90.5-44×2= 2.5 Logic of the trade? We have risk down at 7200, and we may find this trade in profit quite quickly above that level, even if we have a blip up to 7600 or so. Should the FTSE dip lower than 7200 we will adjust, if the market shoots up we have no risk other than our tiny 2.5 debit

Previous week 44 and 16 x 2, we are in profit ( 12 -2.5) =9.5

Now- 246 and 120×2 We are still in profit and this may line up very well.

Trade 323 Horrible Trade- Let’s Do it!

We will place the much acclaimed ‘broken wing butterfly’. By way of explanation, the ‘broken’ part comes from the cheaper wing strike being further out, so instead of say 100 point wide 7450/7550/7650 butterfly (using calls here) The 7700 is bought instead of the pricier 7650. I wonder if it makes sense. And will it work?

We buy the 7450 call 131, sell two 7550calls 63.5(x2) and we buy the 7700 call for 13.5 Thus our cost is: 17.5

Note: The 7650 call was only 23.5 so this is bonkers, IMHO!

This week: 9.5 3×2 and 1.5. =5 So as if to confirm our bias against these, the numbers are horrible but we might as well stick with it

Trade 324

This is a huge ask, but I’ll try a reverse calendar, in the absence of a smart trade! We sell the August 6900 put 40 and buy 7300/ 7200 July put spread 88.5 -45.5= 43 So our cost is 43-40= 3 Logic of the trade? We want to own the Put spread but don’t want to pay for it. The trade makes a profit in various scenarios but there’s always the chance the market will tank, but if our spread hits the max 100, we then have a ‘war chest’ to adjust. Here’s our P&L