That Was The Week Trump Actually Made Money
In another bizarre episode we saw Trump’s ‘media’ firm’s IPO and despite the fledgling venture losing 17 times revenue, somehow ‘money’ found its way to leave the stock at about $60. There are people who, presumably, think Trump is going to be elected again. It’s hard to imagine how dignified one might remain, as a global leader selling gold basketball shoes, and ‘bibles’. There is really no comparison with any other political wannabe. Our only concern is whether he disrupts the Stockmarket. So, yet again we see a rise and no real interest in a sell off despite the US markets hitting repeated all time highs, as FTSE nears its all time high.
Should we be more Worried?
However it gets much harder to take a view on the market as highs get taken out. No, we never predict or attempt to guess the future, but like to quantify what we might reasonably expect. It’s all too easy to be influenced by the real economy, which of course is NOT the stock market. Meanwhile:
The cost of a debt relief order ( a kind of bankruptcy for small debts) was £90, and the numbers applying had increased massively. https://www.bbc.co.uk/news/business-68669762 Now, it is FREE. Yes, there will be an avalanche as those with little or zero income can get debts written off. How this affects the credit industry will come to light in a few months, but it might mean a real battering for the extortionate payday loan business. How many tears will be shed? Not too many. Is this the start of largesse in the form of a few crumbs from the table of the über rich?
How To Gain an Edge
I quote and paraphrase from the excellent David Verkaik’s Book ‘ Why You Won’t Get Rich’. A highly recommended read to anyone with a sense of fairness. It’s shocking. Truly, shocking.
In 2019 Bank of England press conferences were being secretly relayed to City firms 8 seconds before anyone else. They were paying £5,000 a pop and of course made millions from this appalling scam. Read that again! Our highly respected BofE had been corrupted and reduced to the same questionable morality as the rest of the City. Allegedly. We don’t expect the FCA to be up to the task, it doesn’t serve anyone’s interests. So, who was the CEO back then? Why, it was the present governor of the Bank of England. A. Bailey.
How To Gain an Honest Edge
While things don’t always go our way, options can and do give us an edge. Not by mis-pricing or taking advantage of arbitrage or leaked Bof E secrets. Our weapon of choice is priced by very smart people, and as far as we can tell, it’s a level playing field. Anyone trying to mis-price would immediately find a smarter trader using that to their advantage. An IPO of a highly unsuccessful company is always mis-priced. In fact yours truly, based on personal, though non-specific knowledge of one of the actors invested in THG. It’s down 91% from its IPO. No I didn’t invest at the IPO, very far from it but it’s been a ‘dog’ since bought at about 75p. https://www.google.com/finance/quote/THG:LON?sa=X&ved=2ahUKEwienLTz-JuFAxW3V0EAHcApBdQQ3ecFegQIMxAf
We verify prices by doing the calculation, and if you found, for example, an options chain that exhibited a standard volatility skew and suddenly one Put strike was showing 25% greater vol than might be expected, you’d sell it. Except you won’t, because you won’t ever find it!
Distraction Trades
ADA was $0.6295 now $0.6562
XRP was $0.61906 now $0.6275 still lagging Cardano, both drifting upwards, somewhat
DAX Incredibly 3 no entries and one loser -30
UK Gilts were £16.95 £16.98 Yawn! I have no expectations other than a hedge against other stuff in my pension
Legacy trades from 355 and new Trade 360
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. However, the prospects of this trade winning are not zero, but flippin’ close.
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.
WAS: 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.
Now: the 7700 straddle 277.5. the 7850 call 138.5, and the 7550 put is 5.5. 277.5-144 =133.5 A little more profitable
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.
Previous week it’s worth 32.5 – Don’t hold your breath!
Last week 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.
So, this week 23.5, 8.5 x2, 4.5 =11. Ouch, again
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.
This week: 177.5, and ……. 75×3 gives us 225-177.5 =47.5 LOSS We’ll run it and show how to repair such a lamentable 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?
Now the call is 52.5 and our put 49.5
Trade 360, are we calling the market’s bluff?
While the volatility is shockingly low it’s no fun to be selling puts So, in search of something to trade, let’s look at a strangle. Naked, yes, but playing Both sides of the market we sell 8100 call and 7800 put for 23 and 23.5 respectively. Our risk is now at 8146.5 and 7753.5 -logic of the trade? 15 days to expiry, and the downside does not seem to be under any pressure………. Yet!
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.
