332W/e 01Sept Low VIX, & Labor Day

That Was The Week, VIX Got Long Weekend Syndrome

Monday sees the US markets closed for Labor Day. We in the UK, used to have the old adage ‘sell in May and go away come back on St Ledgers Day’. St Ledgers Day is 16th September and horse races happen in Doncaster. Whichever event you choose, it would mark the end of the Summer silliness. ‘Things get real’ to quote the film genre, as the big guns return from holidays. Increased scrutiny of the market may liven things up a little.VIX is comatose, dropping bigly this week.

China and America got our attention as both have their problems. We ride on the coat tails of these 2 economic powerhouses. So when Bloomberg talk from their lofty position we tend to listen( actually read!)


Apologies For Last Week’s Error

Trade 328 went missing in action, and the oversight was not picked up at the proof reading stage. We usually get the big stuff right. We adhere to the mission -making options friendly. However we do not have the time to monitor trades daily, and this, in part, shows how chilled you can be with options. Remember you can always monitor those trades in real time (yes,real time) here: https://www.ice.com/report/265   Those looking for November prices-there’s good news. Bid/ask prices are in da house. We would encourage a trip down the rabbit hole that is those monthly options chains. Prices tell us much that we need to know.We can, from there, calculate the Greeks: https://www.cmegroup.com/tools-information/quikstrike/options-calculator.html Open interest is a handy indication of where the market believes are the key levels. Enjoy! For fun see what prices you’d get for a 2 sigma strangle 6-12 months in the future.

Distraction Trades

ADA  was $0.2587 now $0.2554

XRP  was $0.5214 now $0.4985 Some talk about crypto either dying or about to bounce back, impossible to know.

DAX  2 wins +150, 2 no entries one loser -30.  Tempting to use the opening strategy at other times of the day. However,waiting for the US open is not for everyone. Indeed it’s not for us!. So we stick to the knitting.

UK Gilts  were £16.33 now £16.34 

Legacy Trades and 332, Can We Find Anything in Another Vix Lull?

Trade 328 Put Spreads, the Long and the Short

In conversation with a very smart, and risk averse trader, his research had led him to an interesting proposition. Seemingly the max theta is to be found in the 20/13 delta spread. Combined with TastyTrade’s 45 DTE(days to expiry) this is the optimum place for a short put spread. Let’s see the graphic:

We were a little late to the party but perhaps that’s fortuitous, given the drop this week. So the short put spread, selling the 7250 put (delta 20) and buying the 7100 put (delta13) gives us a credit of 16.5. Now I’m going to be Devilled Avocado here and say I’d rather go with a put ratio spread. But it’s important to understand the difference. Margin for both trades will be required but fixed for the short spread and bigger and variable/possibly brutal for the ratio spread. A big drop would see the ratio spread in trouble but the ratio spread doesn’t get ugly until 6950. 

Last week we saw : 39.5 and 24 ( started at 45 and 28.5) so the credit spread was a tiny credit of 1, the ratio spread took in 12, now 8.5 -early doors of course.

Last those prices:  7250 put 96.5 and  7100 put   52 so the straight spread was: minus 44.5  the ratio spread: 104-96.5 = 7.5 Tiny loss   

Was: 47.5 and 21. So the straight spread is in debit for  26.5,(opened for credit 16.5)  the ratio spread a credit 5.5  ( opened for credit 12)

One swallow does not a spring make, remember.

The straight spread=5.5  the ratio spread gives a Credit 1

Trade 330 We Don’t Take a Loss Lying Down

We carry on the position and break the golden rule: A calendar trade runs at best to expiry, anything else is a new trade. So let’s say we are in debit 255 we own a 7500 put. How can we redeem this position? MAJOR ALERT: We NEVER accept a big loss, we always look to mitigate this with a new expiry month. Here’s what we do: We sell 2×7650 puts, and buy a 7800 put. You’ve guessed, right? We now have a bulletproof rock solid 22 carat gold butterfly. Those prices for the 7650s we get 383.5×2= 767, we pay 528 for the 7800 put. Gives a credit 239, and our loss was 255. So, we are in a loss of 16, but wait………. we OWN a huge butterfly with max poss gain of 150.

Last week: Of course there’s no free lunch, our butterfly is currently worth 16 but Trade 329 cost 57 and we want it back!

Losses. Can we make good? We need the market to rise in the next weeks. Likely? Who knows, but our position cannot worsen much, we are locked in safely.

Was  173, 302(x2), 446.5=16 exactly the same as last week!

Now: 7800 put =321, 7650s 180.5(x2), 7500 put 71 Gives us 31 Credit 

Trade 331 Futures Go Skywards After The Cash Close (7375 )

We have seen this before but does it presage a rise on Tuesday? Let’s get bullish and BUY the 7375 /7475 call spread(74-35) and sell the 7200 put(36) to pay for it, minus 3. Logic of the trade being that the next couple of weeks may be positive, and the trade could make 100 for a cost of 3. We reckon there’s support around 7250, but we are selling a naked put if things do go south, the call spread may not be a lot of help. Again we could have some valuable education with that.

This week: 7375call=132, 7475 call 65, and the 7200put=7.5.  WIN! 59.5 -3 trade cost=56.5  Close out for big profit, run for fun to expiry. So, we’ll take that, and watch to see if it does make the max 100.

Trade 332 Let’s Break Something 

Here’s a fun trade with 2 naked elements, a risk reversal. We sell the call and buy a put.  7600 call  for 20 and the 7350 put for 21, costs us 1. So, some may scoff and this really is not recommended but the logic of the trade is simply this: We have had to date 99 up days and 74 down days and the old logic was that if this got too out of wack you’d go that route. So, a surfeit of up days tells us to go short. OK, hands up, there’s no real logic to this but let’s see where it goes. These trades made ££££ in 2008/9 and the joke was, we’d wait for 2 consecutive up days if there were such a thing, to place these. Since then aside from the obvious 2020, we’ve seen an endless stream of BTFD.buy the freakin’ dip


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