339 W/e 20 Oct Expiry 5/5 Wins and FTSE Plunges

That Was The Week The Market Got Serious About Things

‘ Told you so ‘. It’s such a silly ‘boast’ and no, I do not forecast or predict, but I do comment* when I believe the market has made a big error. And 2.6% is no small thing, and VIX finally hitting 20% in troubled times is normality. However I must confess to having an intense dislike for naked put sellers, but it gives me no satisfation to see traders get crushed. The plus side for these folk is that next month’s premiums are pretty juicy, so rolling may get them out of trouble. Rolling can mean the loss of a trading opportunity and it’s not always the answer, but it gives one time to think. (Never be a forced buyer or seller)

*338 W/e Friday 13th Oct Questionable Market Action

The OIC, it’s not a Soap Opera on Netflix

This week saw the second webinar from our friends at https://www.optionseducation.org/

And while for yours truly it’s very old ground, it’s useful to refresh the grey matter, and maybe spot something you had not noticed so much. On an unrelated topic…. Open Interest. As it implies it’s the amount of options in existence, and as we know they don’t exist until two parties agree on a price. A quick look through some of the lesser known but optionable FTSE stocks will show nothing for open interest. Zero, nix, nada. Which is shocking as people must own these stocks and might think about selling covered calls and cash secured puts to enhance income from dreary old UK stocks. However that is not my point on this matter, as I allude to FTSE index options and something very strange.

The October 7450 put has for the whole week shown the same OI (Open Interest), 12,703 yet after expiry there were 12,836 and we know the FTSE expired above 7450 at 7461.5. You have to imagine some people took a pure punt on these, and maybe the sellers were lucky. In the wider timeframe however OI may be a helpful indication of where the FTSE won’t land at expiry. We’ll explore this,again, time permitting during the week and report back, as we have the daily closing price info for some 10 years or so.( Before the word ‘nerd’ we used ‘anorak’ and this is higher order anorakism!) . We may be surprised as to the predictive ability of such info.

Distraction Trades

ADA was $0.2469 Now $0.2506

XRP was $0.48147 Now $0.51907 (Some legal news on Ripple)

DAX 3 no entries one loss -30 one win +250

UK Gilts were £16.22 now £15.83 Could it get much worse?

Legacy Trades: 5 WINS! 339…. There’s a Bit of Volatility Now,

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. * Has not performed well but it’s 100% safe and the butterfly has some value: 15 (06Oct)

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. A tad underwater (06Oct)

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. Now worth about 16(06Oct)

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

First 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.

The spread was 57.5 and 33 = 24.5 Another nothing week no particular advantage, but we’re in healthy profit

Last week: 103.5 and 57= 46.5 – Close out and be happy, say I. Of course we run to expiry for fun. WIN!

This week: 37 and 15 =22 A step backwards but we run for fun.

Expiry at 7461.5 How did we do?

1. Ugh! 2. BRILLIANT 7550 put = 89.5 3. Excellent 89.5 WIN!

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.

So the call is now 8.5 and the put 25 -so far so good…..

Now(06Oct) 1.5 and 41 and another shining example of why I don’t like strangles

Now 1 and 10, we took in 26, so WIN!

Run to expiry and both sides win, collect 46 Max profit WIN!

Trade 336 Plagiarism or Theft?

Sometimes other people’s work serves us well and again a nod to Liz &Jenny of Tasty Trade for the classic Jade Lizard. A credit trade for ±50 with upside risk capped at 50. Here’s the trade: We sell the 7700/7750 call spread for 67-48=19. We also sell the 7450 put for 33. Maths PhDs will note the credit is 52 ….capitalism run rampant! Our risk managers will note the upside risk capped at 50, downside risk is at 7450 minus the credit, so risk at 7398.

Ouch! now 18.5 and 11.5 = 7 for the call spread and the put….. 57 So we are nursing a loss, but wait…. we are not futures traders we have options, and a credit of 52.

This week: the call spread is 26 and 15, the put is 15, gives us 26 so we’ve made 26 WIN! Of course for fun we run to expiry

Collect Max profit 52 WIN!

Trade337 Time for a Curate’s Egg! When Vol is vile, we improvise

I don’t like these prices for calendar spreads, I don’t like the low volatility. (Amazing that the financial press bang on about volatility when there is none). So we combine a short call for premium, and a put ratio spread for no money. We sell 7700 call for 18.5 and (buy the 7400 and sell 2×7300s) giving us the 7400/7300 put ratio spread for 41 and 20.5(x2). Keen observers will see we only take in premium for the call. Logic of the trade? Should the call come under pressure we can adjust on the put side, should we see downside pressure, we can adjust and have the 18.5 credit to help out. And yes, I still don’t like naked short options…… in isolation.

This week: the call is 26, the put ratio spread is 10- (5×2) = 0. Not sexy is it!

Awesome! Collect 18.5 and the put ratio made zip, but still a WIN!

Trade 338, Horrible lack of Vol still

Slim pickings but we still have theta, so here’s what we do, we BUY a November strangle and SELL an Oct strangle, those prices:

Oct 7450 put- 15, 7750 call-15, Nov 7450 put 67, Nov 7750 call 66. This is the most expensive trade ever but we can take in premiums of 30 from the 133, costing us a lofty 103. However the chances of us losing much are small, and the theta of the Nov options will be far less than the Octobers which we hope will expire worthless, or go to almost nothing next Thursday. It’s simple, it could get ugly, but hard to see anything else worth trading. This will not be an explosive winner, however.

Both Oct options went out for 0. November ? We have 146 for the Put and 16.5 for the call but we paid a lofty 103 making 162.5-103= 59.5 WIN!

339 And a Confession- One of My Personal Favourites

It’s simple, it’s spicy it’s got more front than Blackpool….. The good old Put Ratio Spread. But, this is wider than the Thames at Putney, it’s 200 points wide. Logic of the trade? It is very low cost, at 3.5 and could make 200. Here we go, we BUY one 7350 put for 101.5 and SELL 2 7150 puts for 49. Risk therefore at 6950 no upside risk and this may be a quick turn around if volatility drops like a stone, as it is wont to do.