That Was The Week, Bank Speak (BS) Gave the Market the H*rn
In a dramatic surprise predicated on BS, the FTSE smashed up 2.6% in 2 days. Dovish comments are not facts, but it now seems the Central Banks are committed to a cut. This despite the fact that inflation will be deemed acceptable at a rate 50% HIGHER than they had previously touted. Moving the goalposts much? This ramping up on low volume is hopefully a passing fad, as yours truly is guilty of being highly leveraged to the short side. Sometimes being fallible, being indecisive comes back to bite us. On Tuesday the red flag of 29 down days versus 27 up should have galvanised yours truly into action, by closing out the short stuff. Many other signs were there too and profits were there to be banked. Just one more day I mused. Another salutary lesson as my 1/4 century of options trading looms. IDIOT!
Some interesting comment from the smart people at Bloomberg: https://www.bloomberg.com/news/live-blog/2024-03-22/ftse-100-what-s-moving-uk-markets-right-now-markets-today?embedded-checkout=true
Also on Bloomberg:UK-dedicated stock funds keep losing investor money, with outflows accelerating to the most this year.
Is this the old adage of ‘retail is clueless’? I think I might be lumped in that group, so if you are too, you’re not alone!
Lurching from Russia to China, Nothing To See Here
https://www.bbc.co.uk/news/business-68609007
Trump may be saved by the IPO of the ironically labelled fibsite ‘Truth Social’. The SPAC , Digital World has been involved in several criminal cases and has Chinese backers and a ‘shady'(allegedly) Floridian banker. Notably, he’s an ex-Deutsche bank high flyer. Patrick Orlando is also the chief executive officer of Yunhong International, a SPAC incorporated in the Cayman Islands and whose offices are in Wuhan, China. Conspiracy theorists, fill yer boots.
Distraction Trades
ADA was $0.7230 now $0.6295
XRP was $0.63379. no $0.61906 still lagging Cardano, both wilting somewhat
DAX Incredibly 5 no entries!
UK Gilts were £16.74 now £16.95 Yawn! Briefly hitting £17- (ok £16.99 I cannot lie )
Legacy trades from 355 and new Trade 358
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.
APOLOGY! Typo- the cost was NOT 141.5 it was 114.5. .
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.
Was- 112.5 -it’s never going to be profitable but we did not choose entry using any particular criteria.
Now 7850 call 133 7700 call 257 7700 put 15, 7550 put 7. So, we OWN the 7700 straddle 257+15= 272. We SOLD the wings 133+7 =140 gives us 132. Profit 17.5!
Quite what we do next is anyone’s guess, but we run it.
Trade 356 another battle with no Volatility to Work with
Thank goodness we closed this! At expiry the 7750 call had no value so our spread made the full 50 WIN!
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.
This week it’s worth 32.5 – Don’t hold your breath!
Now 7800 put is 28, 7650 puts are 11 the 7500 put is 6. Gives us 28+6= 34, minus 11×2 =22. Ouch! It’s only worth 12 and while we have never liked butterflies we run it.
Trade 358 Bonkers Trade
We’re going to do something totally wrong. This is the trade that destroyed a hedge fund. It’s a 3x 1. ( a three by one) not a recognised* trade. We sell 3 further OTM calls and buy one call OTM but nearer the money. Here’s what we have: We buy the 7800 call for 78 and sell 3 of the 7950 calls for 22.5 x3= 67.5. Thus our cost is 10.5 and we expect the theta to help us out in a big way.
In the event of FTSE hitting >7950(heaven forbid!) we have a lot of juice in the tank from our long 7800 call but it could get scary. (Calculator uses the Future price, note.)
The 7800 call is 170.5 and the 7950 calls are 74.5 x3= 223.5 We are nursing a loss of 53+ our cost 10.5 Ugggly!!!
We run it and hope( that’s not a strategy) that the market fades, while we are in our golden zone. Expiry this week would be peachy for this trade.
Trade 359 Come On, This High Looks Suspect. (Ignore my massive bias!)
While that might express my opinion that is not tradeable. I’m pretty rubbish most of the time, and definitely lost the plot + vat this week.
OK, let’s take a ‘punt’ here and do a synthetic short. We sell the 8000 call for 53.5 and buy the 7900 put for 58.
What could go wrong?
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.
