FTSE 100 | Stocks rocket on brighter global economic outlook
Thanks to Investing.com for that headline. Frankly I had no clue as to why FTSE smashed up on Friday. However we know the US markets have been on fire recently and the old adage ‘When America sneezes the rest of the world catches cold’ still holds true. So, casting aside our woeful poorly performing January trades, we look forward to some fun and different strategies. Good traders find a way, I’ll ask one!
So, debt has again become the bogey man and 2 emails jumped off the page this week, at the same time ± 2 hours. From Bloomberg:
Almost a century after the US Federal Reserve first tried to discourage regular bank borrowing from its traditional backstop program—known as the discount window—officials now are trying to rebrand the primary credit facility as a source for everyday liquidity. The problem with that is banks remain leery of doing so, given the stigma associated with it. As one might expect, the Fed’s effort is being driven in no small part by last year’s regional banking bloodbath, led by the collapse of Silicon Valley Bank. Regulators were shocked by the rapid flight of deposits, but also that SVB and other lenders were ill-prepared to even access the discount window, instead relying heavily on Federal Home Loan Banks.
Now regulators, including the Fed, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. are drafting a plan to require that banks tap the facility at least once a year, a measure aimed at removing the perceived red flag associated with its use. “Banks need to be ready and willing to use the discount window in good times and bad,” Fed Vice Chair for Supervision Michael Barr recently said.
And a little audio from Fuller Treacy: https://fullertreacymoney.substack.com/p/pre-subscribers-free-abbreviated-b7e?utm_source=substack&utm_medium=email#media-f4d21516-c91e-4bd6-acb3-3791ac81479a
Money, Money ,Money
So, the message, also from the esteemed John Mauldin, to ‘malparaphrase’ “It’s about the debt, stupid” though we don’t hear it so much in the UK it’s of course a raging issue. We understand the latest US bond issue was by all accounts a bit of a dog’s breakfast. For treasuries there comes a time when the’ risk free’ rate needs to be juiced up to the point that interest payments become unmanageable. Nations default. However markets are all about perceptions, and as they say buy the rumour, sell the news. FTSE is not overpriced. In fact it’s on a PER of 10.5%. That may be a fair price given the current earnings expectations.
Distraction Trades
ADA was $0.5136. now $0.4831.Going in the wrong direction.
XRP was $054915 now $0.52994
DAX 5(five) No entries! What a strange week. However a perfect set up Tuesday at 20:40 gave 200+.
UK Gilts were £16.80 now £16.75 And, another hideous week and there is some concern over the value of government debt, here and in the US.
Legacy trades 349, 350, and now 351
Trade 349 Another Calendar Variation
Here we go again and yes, we consider calls overpriced. We sell February 7750 call and buy the March 7650/7750 call spread. We have a small credit of 6
Overall Delta is 0.20 so we may have to manage this, but note it was too late, in our own experience, to place a Jan expiry trade. Extrinsic premium is woeful. Thus, we may look at closing out before Feb expiry.
A fun trade the spread is now 21 and the Feb 7750 call is 11 This is our kind of trade and now the choice is a) close out for profit 16 b) Buy back the short call for 11 c) Run it.
Now: The spread is 42 the short Feb 7750 call is 33.5 However, we had an opportunity to buy back the Feb call for 11 and sell it again for 29, giving us …..more!
Trade 350 A Numerical Milestone
Well, we threatened! YES we’re going to trade a FTSE covered call. Here’s what we have, using Friday’s FTSE cash close 7461. We buy a future at £10 a point and sell a 7600 Feb call for 37.5. We really don’t like this, it’s for fun, and of course if the call expires worthless we keep the £375 credit And the future? That’s the fun part. Expiry, 16th February at 7600 is the ideal. Logic of the trade? We can wait!
Oh no! It’s 103.5 for the Call but what did the future do? bought at 7461, close out at end of play 7635, which gives us 174.(174-103.4= £705)+ the credit from the call £375=£1,080.00. This is bizarre -bit of a fluke?
Let’s try a new trade: We buy a long Future 7635 The Feb 7750 call 33.5 – a Credit £335.
Trade351 Ugly Trade for Ugly Vol
Vol is still rubbish!
We buy 7550 Feb put for 31 and sell two 7400 puts at 11.5, so our trade is a non-classic put ratio spread. However, these should be opened for a good credit. Thus, we are paying away 31-23= 8.
Logic of the trade? 8 is cheap for a bit of insurance if we get a nice drop. However, that’s a big IF. Options have never looked so ugly. 2017 was the last flatlining year. 2023 was not awful. We hope 2024 brings us some juicy premiums at some point. We have to stay solvent longer than the market can stay rubbish.
For those new to options:
https://optionsinvesting.co.uk/special-edition-how-options-work-1/
https://optionsinvesting.co.uk/special-edition-how-options-work-2/
https://optionsinvesting.co.uk/how-options-work-page-3/
Contact: [email protected] If there is anything you’d like help with, we all started somewhere and yes, it can be baffling.
