334 W/e 22 Sept We Strangle The FTSE!

That Was The Week, Have We Peaked?

Against the backdrop of the S&P dropping 6% in 9 days the FTSE has bucked that trend in a very out-of-step way. So, should we maybe dare to suggest it has peaked for now as a ‘triple top’ might suggest? I make no apologies for my ‘perma bear’ outlook as my cynicism knows few bounds, and I blame my British heritage! However in a quiet way our economy is not doing badly. While FTSE,as often mentioned, is not the UK economy, it is something of a barometer. And we do have a national propensity for beating ourselves up. So, seeing a rise as we did last week makes my head spin.

Our High streets look pretty grim, and the tales of poverty are not counter-balanced by the good news of better working conditions and wages. So while our health service and railway people are striking, to quote” We’ve never had it so good”. CPI, RPI dropped, and inflation is magically in retreat. Here’s our favoured resource for the tedious stuff: https://www.forexfactory.com/calendar

So is the Bank of England our friend or foe?

Interest rates are a double edged sword, we’re told. Thus if raised too quickly the economy tips into recession. Keeping rates too low fuels inflation, yet we didn’t see inflation until recently. Remember rates have been stupid low -effectively several %points negative, from 2008-2022. However this did fuel house price inflation, which has underpinned the economy, and may not be as sensitive to higher rates as previously thought. The next couple of years will be interesting if the planet is not ablaze or underwater by then! There’s that cynicism again. ( I remember 17% mortgage rates, and we survived)

This Has Played on My Mind

Popping into my inbox the other week, it rings true but should not be cause for despair: https://steadyoptions.com/articles/why-new-traders-struggle-3-key-concepts-new-traders-never-grasp-r794/

We show here each week a simple approach with the emphasis on managing risk and capital preservation. So, having a lot of winning trades is irrelevant if you ignore or fail to manage risk. That is our simplistic mantra, being ‘neutral’ ie not married to the underlying, and trying not to be 100% directional. The future is not yet written but the options Greeks ARE.

Distraction Trades

ADA $0.2465

XRP $0.51192 The market continues to favour Ripple.

DAX Grim reading: 4 no entries(missed a 150 point drop) 1 break even +30.

UK Gilts Vanguard ETF £16.45 was £16.36

Legacy Trade: 333 – We morphed this into something new:

Trade 334 Picking up our Legacy Trade

We have a legacy of a long October 7550/7450 put spread, currently worth 13.5

Let’s look at:

1.Convert the trade into a 7750/ 7650/7550 put butterfly. We buy the 7750 put for 98.5, sell TWO 7650 puts 61.5, giving us a credit of 24.5. And magically that buys back our short 7450 put.

2. Convert to a put ratio spread by selling another 7450 put, giving us risk down 5% out of the money at 7350, it’s now a credit trade for 28 with a shot at collecting a further 100 if the FTSE takes a tumble.

3. Sell a 7350 put for 16.5, giving us an overall credit of 10 but risk now at 7250, with the chance of a max 100 points extra.

4. That’s enough! Yes we could do allsorts with calendars, condors et but let’s keep it as simple as your frazzled (this week) author

this week: well the spread is now worth: 52-31 = 21 The abysmal market action has done nothing for us, we need a decent down move that doesn’t melt up one hour later. Our 3 trade choices have done nothing, but this is a game of patience.

Trade 335, Picking Through the Scraps, Staying Neutral.

Honestly this is ‘one ugly market’, to paraphrase Arnie in Predator. Vol is ludicrous, but when we’re given lemons we make lemonade:

An almost delta neutral strangle. Selling the 7950 call and 7400 put. We have risk at 7996 and 7354 and can close out any time within the 28 days to expiry. Boring, steady yet it may get spicy and give us a chance to show adjustment.