That Was The Week
Some might argue that the US State of The Union address could have been a catastrophe if President Biden continued to stumble over his words. It was a crowd pleaser and thankfully not a market mover. History of finance Geeks may have a view on these events. Soothing words from the FED and job numbers continued to justify the US markets continued climb. Last year the markets were rattled by the failure of Silicone Valley Bank, and yours truly had a brain fog over closing a trade that was nicely in profit. Beer and trading are not comfortable bedfellows!
We had a budget, did anyone notice? In an election year we have come to expect a few baubles thrown to the masses, but this election year budget looked pretty lame. No change to IHT, or stamp duty on shares, but there is a supposed ‘BritISA’ which is not the worst idea. Which companies would you invest in? Why are we deprived of having access to trading options on UK equities? It should be simple enough to strangle or collar a stock. We are really behind the curve and more companies are choosing to list(IPO) in other markets. Pessimists might be predicting the demise of the square mile. I sincerely hope not, but frankly the access we have by UK companies is almost non-existent. Patronising banks and other share dealers overcharge, and yours truly remembers Computershare only allowing trade with actual paper certificates. Trade online? Not ‘ere mate.
Bit of a nod to my broker Degiro. Massive choice of instruments excellent execution and tiny fees. It’s a Dutch company and recently they had to sort out the shambles of Brexit rules. No, I cannot trade options with them.
Some updates from SJ Options
https://youtu.be/6tasHkw1e2I?si=UuyLNKhcGYS19ISD
While not wishing to draw comparisons, I hope this is also of interest to our readers. There is most certainly some wisdom there, and in Trade 355 we tried the short iron condor.
Distraction Trades
ADA was $0.7321– now $0.7268 staying up this time, ±
XRP was $0.63945. now $0.62122
DAX 2 no entries, one loser -30, one win +50
UK Gilts were £16.74 now- £16.95 Yawn! Wait- a bright spot!
Legacy trades from 354 and new Trade 357
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 2 weeks ago: 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.
Last week: March 7750 call is 24.5 and the April long spread 122-73.5= 48.5(-24.5)= 24
This week: March 7750 call now 11.5, the April 7650/7750 spread 109.5, 63.5= 46 = 34.5
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.
The 7700 straddle 84.5, 115.5 = 200 7850 call is 33.5 7550 put 55.5 =89. Our trade is now 200-89= 111.
So, not the worst situation. However, with any trade you really don’t want to see that premium melting away. Thus we run, for fun and the unexpected.
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 !
NB These are March options and now…… 82.5, 49 and 11.5 =22. ( we paid 8.5 remember) So we run it some more, and do not boast about making 250% That would be as naff as those painful sites that want you to pay $50 a month. For trades you could easily spot and manage.
Trade 357 The April Expiry Cycle Beckons
Despite the many winners we also like to show other trades in all their splendour. However nothing works as well as real prices in real time. So instead of cherry picking another winner we go with an old chestnut, the Butterfly. What’s the problem with the ‘fly? You have to be right in a narrow range, but there is of course a huge choice in risk/reward. We like quite a wide ‘fly and the strikes we choose for our Put butterfly 7800/7650/7500. Remember we sell the body and buy the wings. Our prices 7800 177.5, the 7650 is 91 (x2)and the 7500 is 43.5. 182- 177.5=4.5, deducted from the 43.5= 39. Max profit at 7650 is 150 -39= 111. However our risk is no more than the 39 premium paid.
We could reduce this and buy a lower wing as the 7450 put is 34. That would give us a broken wing butterfly with lower cost but risk increased by 50.
Max reward, ( the difference between 7800 and 7650) 150- 29.5 =120.5, max risk 84.
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.
