That Was The Week All our Trades Won at or before Expiry.
So, yet again options shine and if you think yours truly is somehow gifted as a trader, that is very far from reality. However putting options together in trades is the only lesson. Thus any newbies wanting to find their way should pay attention to the interactions of options. Not the trade choices. And not the predictive power of the planets or the sun’s activity. So we look at where the risk is, and the profit is the cherry on the icing on the multi layer cake.
The Week’s Events
With no small joy, yours truly watched as Trump’s alleged ‘fortune’ took a massive blow. Quite how America functions is as mysterious as Italian tax revenues. However politics just gets weirder around the world and maybe best to move on. The UK is in recession, retail sales were better than expected, so the FTSE took off with the verve of a caffeine fuelled Tango dancer, after a strange week. And this, from America raised a smile:
Lyft shares pull back from 60% jump after disclosing earnings error
Shares of Lyft rose in extended trading after the ride-sharing company said it expects to generate full-year positive free cash flow for the first time, but cooled after the company disclosed an error in its press release.
The stock briefly surged more than 60 per cent to just over $20 in after-hours trading on Tuesday, reaching the highest since August 2022, but later moderated to a gain of about 15 per cent.
So what in effect is a minicab firm caused idiot buyers to throw their dollars on the bonfire. Quite frankly yours truly is mystified as to all these delivery services, of course Yodel has predictably failed and been gobbled up. I’m waiting for a 14 year old to create and distribute a free App that replaces all these stupidly priced stocks. And, gives drivers the chance to work better for much more money.
This raised an eyebrow. I always look at the VIX and take a weekly screenshot with Bollinger bands, that is my secret. Nothing wrong with being a VIX watcher, just don’t try to predict with it.
Distraction Trades
ADA was $0.5332 now $0.5832
XRP was $0.52060 now $0.5522 Again swapping price position but rising, with ADA
DAX one no entry 4 Wins! +30, 70,100,80= 280 – After last week’s big fat zero.
UK Gilts were £16.66 now £16.58 Slow death? Hope not.
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 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.
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
Running to expiry we could take a 43 credit or ….we could create Trade 354
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.
Expiry at 7650 meant the call went out for zero, giving us 44, and the future made 87 This is a winning set up ignoring all the noise, just run it without stops, for the week!
I am humbled by this as I have never liked the covered call. We will try again, in the future.
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.
That close was the right move a modest WIN
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.
WIN! Both sides went out for zero
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!)
Best we could do was just over 200 on Tuesday, we won’t run it but will take a look in this March expiry cycle. Tiny WIN!
Trade 354 Rinse and Repeat, Ratio w Calendar
Remember this?
[ Trade 349: We sell February 7750 call and buy the March 7650/7750 call spread. We have a small credit of 6 ]
It was a handsome win but here’s the twist…. We sell the Mar 7650 call for 94 leaving the short 7750 March call and we BUY the Apr 7650/7750 call spread for 51. So we have a nice profit and a new trade.
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.
