That Was The Week -Expiry Went Haywire Due To IT Issues at LSE.
Yikes! So, a poignant reminder that IT can go bonkers as AI is poised to enslave all of humanity. Trump talked about ‘unity’ (as if) but reverted to type and bloviated about himself for hours. Our own Liz the lettuce Truss and Nigel ‘Brexit’ Britain failed to get an audience with emperor Trump. However Bojo seemed to worm his way into the exalted one’s private chambers. Apologies for getting political, but we cannot trade while we have lunatics running the asylum. Biden may be old but he’s not reckless, and he listens to wise counsel. And breathe!
This was a wild week for expiry(8205– but probably 8175) as we had a lot of ‘ uppy downy‘ that looked for all the world like the cold metal digit of AI to yours truly. Conspiracy theorist, moi?
The July Expiry and our Trades
We had 3 excellent winning trades and one small loss, which in mitigation was >100% in profit last week so while we don’t like to brag, we dun good. So again we wish to hammer home the value of our free education, it’s a journey. The direction of travel should take our readers from rightly confused about how options work, to seeing the real prices, the real interactions of different strikes, different expiries and different options. Options are like bank accounts, whereby you can get an overdraft by selling an option to take in premium. It’s a loan until that short option expires worthless. It’s a harsh penalty if it goes the other way. ( But you don’t get the acerbic letters).
Webinar Goodies Again
Here’s a snippet from a freebie from https://www.netwealth.com/ourviews/
This is the kind of stuff that investment/wealth management companies look at and it may help us balance our views. I have no idea about the company but the speakers had all the right credentials. A few years ago many of the trading institutions used to host live events, when they were trying to schmooze new prospective clients. Those days may be gone, but keep a weather eye here, the odd fun event crops up from time to time.
Distraction Trades
ADA was $0.4197 now $0.4331
XRP was $0.5111 now $0.5942 Ripple winning this race again
DAX 1 loser 3 wins 1 break even, we made 230 Again letting loose. We have shifted from the dogma of trading at a specific time, but of course the problem is, running those winners.
UK Gilts were £16.67 now £16.67 It’s not an attractive instrument but hey, …………… …….. some day !
Legacy Trades 3 Wins now and one small loser (which was a winner last week) and New Trade 374
Trade369 July Expiry
So, while we are utterly bereft of clues about the market should we try another strangle? Not the trade of choice but it’s hard to see what might work well and July expiry is only 34 days hence. Thus we go with the same strikes as Trade 368. Therefore we are saying we think/believe FTSE will find support higher than 7900 and resistance below 8500. We collect 39.5 for the put and 19.5 for the call We therefore collect 59 and sit on our hands for 33 and a bit days. Apologies if it’s a bit beige but we’ll try something a bit feisty next time.
With not a lot going on with volatility we now have prices: 15 and 20.5=35.5 we collected 59 a great outcome as theta took chunks out of premiums. Yes you could do this whilst lying shipwrecked and comatose drinking fresh mango juice. (Nod to Howard Goodall)
Last week: 14.5 for the 7900 put and 6.5 for the 8500 call Yowser! A very nice return as we sold for 59
Last week: 5 for the Put and 3 for the Call Even better-59-8= 51. Honestly, close out go sit on the beach WIN!
Now: Put is now 1 and the call 2.5 – No, I would not hold on for pennies, as shown with last week’s comment
WIN! We take 100% of the credit !
Trade 370 Ladder Not Laddish
Let’s kick the beige into touch and sell a ton of premium and see where it leads us. We use July expiries: buy: 8500 put, 248 sell 2x 8300 puts 110.5×2= 221, buy 8150 put, 53.5, sell 2x 8000 puts 24.5×2= 49
Thus we have a cost of 248+53.5. – (221+49)= 31.5 Logic of the trade? We buy a juicy in the money put spread, we have no upside risk other than the cost 31.5 Downside is a tad skewed giving us a lot of wiggle room just below 8000
Last week: 316.5, 148.5×2, 67, 26.5×2 . We have 316.5+67= 383.5 long premium. Short premium: 148.5×2= 297, 26.5×2=53=350. We are in credit to the tune of 33.5(we paid 31.5)
Gives us: 280, 106.5(x2), 33.5 and 9.5(x2) 280+33.5= 313.5 minus 213+ 19= 232. We paid 31.5 thus 313.5 – 253.5= 60 (200% profit)
A real gift from a simple strategy, buying deep in the money WIN! OK- we run it ……for fun!
Again for fun…. those prices: 239, 63(x2), 8.5, 1.5(x2) =118.5 -31.5 gives a profit of 87 -ok almost 50% more profit
While expiry was declared at 8205 on trading statements, we suspect this will be 8175 as price action suggests so we will go with that which would give us:
325, 125×2, 25, 0.= 100 WIN!
Trade371 A Trade for Election Week ( The US has some kind of holiday on 4th July)
This is disturbing, while not exactly at the money this straddle has call Vol at 13.01% and the put at 9.71% So what’s the take away? Nobody wants to buy puts? Everyone wants to pay too much for calls? It’s a very cheap straddle with an overpriced call. We choose a Tasty Trade Liz and Jennie ‘Big Lizard’. Sell the straddle buy an out of the money call. We buy the 8250 call for 55. Gives us 173-55=118.
Logic of the trade? However, we cannot lose to the upside, and downside is protected down to 8150-118= 8032 We like it!
How did we do? The 8150 straddle is now 105.5+33.5 our long call is 47.5, So: 139-47.5=91.5. We collected 118 in premium sold giving us a profit of 26.5 – I’d close out but we run it. So, why close out? We have max sensitivity at 8150 and a new government, just a thought…..
So from last week we now have the short 8150 straddle 121.5+8.5 the long 8250 call 48 gives us 130-48=82. We took in 118 so, 36 profit (We opted to close out last week, but always run for fun)
Expiry at 8175, gives us 118-25= 93 WIN!
Trade 372 Cause for Optimism?
We’ll go very mildly optimistic with a call ratio spread, it ‘s simple carries some risk( ∞ ) yes theoretically the risk is infinite, and FTSE could go to 20,000 if the £ sterling dropped to $0.001. The strikes we chose are long 8200, short x2 at 8300, this then gives us risk at 8400 -figured out why? The prices 73,29×2 = 15 debit. And logic of the trade- we may see moderate rise, or we may see a lack of confidence in a yet untested chancellor, to the downside we can only lose max 15, to the upside we could make 100, the value of the spread, so effectively 85 nett. It’s a tad spicy and not altogether a peachy trade but we can adjust/close out any time.
This week 8200 call is 80.5 the two 8300 calls are 26.5. =27.5 (we paid 15) Small profit again we will run this.
Expiry 8175 means we lose our 15 debit Loser! Take a picture! However in mitigation we could have closed out last week for healthy >100% profit.
Trade 373 A Challenge Hotly Debated
We are told that the risk profile for a covered call v short put is the same. Now this is usually based on stocks,(which can be assigned/exercised early) not an index but we thought it’d be interesting to check this out. So, we buy a future and sell a call and in isolation from this we sell a put Eagle eyed traders know that expiry for July looms next week, so we go with August options. The future, at best guess : 8275 at cash close on Friday. We choose similar deltas giving us: 
So as you can see, the short call would give us a credit of 33. Buying a future carries margin costs. The Put 42.5. This may not be a fair test but it’s a demonstration and gives us short Put risk to the downside if the future drops below 8100-42.5= 8057.5. The covered call gives us a modest 33 credit, so downside risk 8242. Upside risk? You get called away at 8425, plus you have the 33 call credit. The short Put credits you with 42.5
We could sell twice as many calls or puts, and will monitor that idea too.*
Caveat:
We really do not like mixing a long/short underlying with options. All our winning trades have been based on pure options. Buckle up!
This week:
So we ‘see’ the future at 8158 around 4.30 yesterday. So this gave us –80.5 for the short put A loss for the future of 117, while the call went to 14.5 Frankly this is horrible and every way you look at it this is not a nice trade even if you were to trade the collar, (Reversal) sell the call to buy a protective put. ( loss of 117, mitigated by an increase in the put of 38, while the short call lost 28 in our favour. Of course this is a demo it’s not a trade we’d take and probably the options should be ATM.
*Does not look like a plan!
374 Summer Madness ? GUTS v Strangle – Sounds like a Horror film!
Following the success of our previous GUTS trade ( both sides are short options in-the-money) We fancy comparing the dynamics of the two strategies. Both take in premium, with the expectation that this will go to zero. So for the GUTS we sell the 8350 put and 7950 call but for the strangle we sell the 7950 put and sell the 8350 call. See what we did?
So for the strangle we take in 62.5 for the GUTS we take in 462, BUT!! We will of course have a 400 point liability at best, as we have sold deep ITM options. We can only make 62. Check out the Greeks and as you’d expect there’s a bit of nip and tuck but similar profiles for the two strategies. Personally I like working with deep ITM options, somehow it seems a little more comforting that the market has to chase you for such big money! Of course you still owe it. By the way the 400 is called ‘intrinsic‘ premium, while the juice on top is ‘extrinsic‘. A little addition to that vocabulary.
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.
