That Was The Week India’s GDP Exploded up 8.5%
Well, the FTSE had a less than tempestuous week as nothing much happened. At least nothing much that was good, happened. French farmers went on the rampage in their tractors blocking l’Arc de Triomphe in Paris. Farmers everywhere are getting squeezed, with climate change, resultant rules, and taxation.The World is still in a parlous state with so much conflict, you’d think such events would affect markets. Nope. Reminiscent of the 2003 Iraq war, when the markets went up at a 60º angle for 3 years. However that was on the back of the tech bubble bursting. We’re told that the Nvidia fuelled tech feeding frenzy, AKA the big 7, is not a bubble as forward earnings estimates are not as crazy as in 2000.
There is to be a budget, which may bode well for the benighted consumer, but the prospect of many meaningful tax cuts is not a consideration, we’re told. Trying to garner political goodwill from a budget may be akin to offering Titanic passengers an 11th hour ice cream. Politics everywhere seems to be a mess, much to the joy of the pariah nations’ dictators. Allegedly.
From the esteemed Lawrence McMillan:$VIX has returned to low, benign levels. That keeps the “spike peak” buy signal in place. In addition, both $VIX and its 20-day Moving Average are below the 200-day Moving Average, so the trend of $VIX is downward, and that is bullish as well. “It’s too darn quiet Carruthers ” springs to mind. Always expect the unexpected!
Distraction Trades
ADA was $0.5888 now $0.7321– big up this time
XRP was $0.54628 now $0.63945 UP….. and away?
DAX 3 no entries, 1 win +60, one break even +30. Again, a bit rubbish really
UK Gilts were £16.67 now £16.74 Slow death? Wait- a bright spot!
Legacy trades from 353 -355 and new Trade 356
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!
Running this would be a disaster of course as the chances of a huge move are not zero, but not much >zero!Now? 129.5
Of course you would NOT hold this to expiry as it can only lose money, and reason for the trade was the February effect -which didn’t happen. It is closed.
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.
So last week: Trade 354 is: 38 for the March 7750 call. April 7750 87 April 7650 139.5 Which gives us 14.5 Not bad for a week’ s juiced up theta. The sky is not the limit that would be 100.
This week: March 7750 call is 24.5 and the April long spread 122-73.5= 48.5(-24.5)= 24
Trade 355 SIC Short Iron Condor.
In a nod to another options website/blog, this is a curious trade as it should not work. The presenter claimed it had made more than a strangle or a calendar trade in a week. This is a short iron condor, so we are buying the ATM options and selling the outer wings. We choose April expiry which gives 55 days to be wrong. The trade shown was 49 days from expiry, and the strikes were a little different, but let’s give it a whirl. We buy the April 7700 call and put and sell the 7850 call and 7550 put. Those prices: 111.5+110= 221.5 minus 50+57=107, gives us a debit (ouch!) of 141.5.
The prospects of this trade winning are not zero, but flippin’ close. We have a duty to stick our necks out with the occasional howler, and this will probably be a dreadful trade, based mostly on a volatility explosion. That seems unlikely, but then life is full of surprises!
Caveat: people make a living trading normal iron condors.
This week: APOLOGY! Typo- the cost was NOT 141.5 it was 114.5. So it’s not awful but it ‘s not profitable, on Monday it was 113, on Wednesday 113 and on Friday 114. This is an experiment giving no regard to entry criteria, although in a normal market the wings might be pricey due to vol,and would therefore lose premium quickly. We run it.
Trade 356 another battle with no Volatility to Work with
Volatility is not your friend with calls, if you’re a grubby premium seller, as Vol does not increase the further out-of-the-money you go. However with such a highly rangebound limp FTSE let’s buy a 50 point wide call spread, and pay for it in part, by selling a further out call. Here’s the trade, we buy the 7600 call, for 99.5, we sell the 7650 call for 66.5, and we sell the 7750 call for 24.5.
The maths: 99.5-66.5=33, minus 24.5 =8.5 (Keen eyed party poopers will notice the similarity with trade 354 along spread with an extra short)
Logic of the trade? If we get a drop we have no more risk than 8.5, we could make the max 50 for the low cost of 8.5, our risk is at 7800. We have a decent chance of making coin, and risk that we can manage.Risk of ruin? Almost zero. Let’s get ready to rumble !
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.
