353 W/e09Feb. Volatility Around the corner?

That Was The Week BP Got A Boost, FTSE Went Nowhere

Conflicting news about BP, profits plunged, profits second best in a decade. And, shares up 5%.  So, S&P500 yet again bumping up to new highs and comfortably breaching 5,000. However own dear FTSE seems to be hampered by the number 7670. So if we were investors we’d be a little miffed. But, thankfully we’re not, we’re traders.

Inflation -Now That’s What I call Irony

Apparently a ‘Big Mac Meal’ costs $18 in the US. Just for fun here’s the Big Mac Index: https://www.statista.com/statistics/274326/big-mac-index-global-prices-for-a-big-mac/  The major inflationary input is labour (labor for our American cousins) . So, while it’s good to see better wages, it’s rather shocking that the terribly low wages helped the consumer get a cheap meal. By the way if you don’t wish to look, the UK is number 7 most expensive in the Big Mac Index. Of course, Switzerland occupies the top spot. And unsurprisingly, I believe they have occupied that exalted position for decades.

The Guv’nor Spoke.

We were treated to a webinar with Sheldon Natenberg this week. Fail to own ‘Options Volatility and Pricing Strategies’ at your peril. It is a smart,  thorough tome and best digested in small chunks.

The Options Institute ( CBOE.com) kindly invited us to the ‘Dynamics of Risk’, and we were treated to a simple way through how to calculate the ‘Greeks’ given  one or two inputs. I can only show a few screenshots but it’s food for thought, and Vega figured prominently. As in slide 1. Kind of intuitive, isn’t it?


And then there’s the edge that we have, shown here in ‘elasticity’ . This is what awakened me to the power of options. The share that costs 100 rises 1% the call rises 5%.  In other words, you can own the stock as a long term investor and be content with the returns, or trade options for the profits.

Thirdly, here’s some fun! Derivatives of derivatives of derivatives. I love that the Delta of Theta is ‘charm’ and Vomma….. well that’s something we don’t even like to mention!  We do not trade in sufficient size to worry about 3rd order stuff, though if I find myself trading an eight figure account it would certainly be an input in trade decisions. Ultimately it’s a market, take it or leave it





Distraction Trades

ADA  was   $0.5207. Now $0.5332  A big nothing as Crypto seems to gain credibility, then looks fragile.

XRP  was   $0.52149  now $0.52060  Again swapping price position with ADA

DAX    Disaster! Unable to access my trading record for Mon and Tues, but the rest of  the week…. 2 no entries and one break even (+30)

UK Gilts were    £16.81  now £16.66    Tempted to say the Devil’s in the detail  666 anyone?

Legacy trades from 349 – 353


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

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.

Last week : 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!

was: The spread is 75-40.5= 34.5, the short Feb 7750 call is 14. 

This week: Feb 7750 call is 2, the Mar spread is sadly only 22.5  we run to expiry and hope for a blip up -However this is a big win -initial credit 6, then buying back and reselling the Feb call gave us another 18, plus what we have now, a credit 20. WIN

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. 

Future last week at best 7670   the call 29 -giving  35 for the future and the call made 4.5    =£395  (Remember this needs to be monitored intra day, but it’s fun)

Now: Future long at 7615, sell the 7650 call for 43.5 

This is not an investment it’s trade, remember and a nimble trader would have done ok Mon and Tues. End of the week- the future lost 44 the call was sold for 43.5 now 9.5, so a loss of 10

Now: 7563 long future,  sell the 7650 call for 44 – this is more fun than I expected.

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.

Now: those prices 32.5 and 10×2 gives us 12.5

Now 7550 put 29 and 4.5 x2 for the 7400s.  Gives us 20 minus our debit 8. WIN  Might be prudent to cash in

Trade 352

If you’re going to trade naked, go with a strangle: sell the February   7750 call for 14, 7450 put  for 14.5  As there are only 9 trading days and there seems to be no direction what could go wrong? Risk at 7778 and 7422  Bring it!

Now it’s  2  for the 7750 call and 8 for the 7450 put. WIN   Easy money isn’t it? 14+14.5= 28.5, minus 10 to close= £185 in your pocket. Or if you trade a 10 lots, it’s £1,850. 

Trade 353 In This Ugly Low Vol Environment

So, this is a contrarian trade going against all the metrics. Trading ATM options is expensive  and everything works against you when you buy. We buy a 7600 straddle! Why? February has a reputation for being a bit of a bone shaker, and this moribund market may be due for a big move. So we buy the March  7600 call for 62.5 and the 7600 put for 120.5.  We pay 183  and hope the market makes a decisive move. Even if it’s for a day we might get a free ride. Remember Friday is expiry and strange things can happen. (OK they probably won’t and this is an awful trade!)

 For those new to options:




Contact: [email protected] If there is anything you’d like help with, we all started somewhere and yes, it can be baffling.