That Was The Week -We Spotted A Volanomoly
More on the Volanomoly later. Firstly Governor Bailey made a ‘possibly spurious’ comment about rate cuts being more substantial and the £ sterling dropped like a stone. However given Europe’s problems the £ is creeping up against the €. Against the $ we seemed to bounce back, to the $1.31 area. Note: Yours truly tried trading GBPUSD and made no progress. After 2 years! Market moving events like central bankers’ offhand comments seem to have a disproportionate effect. However the knock on effects seem marginal and over time are quickly processed by the stock markets.
The week saw more geopolitical stuff with wars, Trump’s epic insurrection evidence trail, China’s renewed fiscal push, oil prices. So, how did this move the needle on FTSE ? We’ve been in a 100 point range since 13th September. Some stocks bounced back, notably BP which to this awful stock picker will always gravitate to a fiver (£5)
Volanomoly
I stake my claim for this ludicrous word mash up, as it’s a rare beast. As traders we keep a weather eye on our positions and so it was with some horror that I noticed that from 01Oct to 03Oct the prices of 8000 puts had moved from 13.5 to 18. respective volatility 15 to 18. Well, obviously the market’s dropped, you’d say with conviction. Wrong! FTSE was 8328 and then on 03Oct was 8349 a rise of 21. Vol is still elevated and may well reflect concerns to the dark side. This is where we need to bear in mind it is a….. MARKET, and prices reflect how much people want to pay. You have to know that market makers are not idiots and while naked put sellers are a constant thorn in our side, it’s a concern. Hence a Volanomoly!
In the Inbox This Week
Always happy to share useful stuff:
I think we’re all aware not that ICE.com are launching options on Vix Futures https://cboe.zoom.us/webinar/register/7717262523661/WN_Rg95Lf3vQpigZP5lca4c_g#/registration
And this from the highly rated iVolatility https://www.ivolatility.com/news/3024
This blip up (11.36%) in VIX this week may be a harbinger of doom and we know that sadly, the world can get a lot crazier. While still short I take no pleasure from market dumps. (Remember Brad Pitt in the Big Short?)
Distraction Trades
ADA was $0.4001 now$0.3532
XRP was $0.6154 now $0.5319 Ripple still ahead of our preferred Cardano but some wobbles.
DAX 5 Wins! 2 Losers! nett 340 This is getting fun. No trades on Tuesday
UK Gilts were £16.86 now £16.68 Another painful week. The fund that I use, like actual gilts, pays dividends at around 3.8% so like all investments you get buyer’s remorse.
SPECIAL NEWS ITEM:
France is pulling up the roots on a chunk of its vineyards as global demand declines. The European Commission approved funding for permanent removal of what amounts to 116 square miles, or 4% of the total, according to a Bloomberg calculation. “The situation of the wine sector is indeed worrying, with a very sharp drop in the harvest forecast due to climate change but also to the drop in wine consumption and very tough competition,” agriculture officials said.
I only mention this as I also hold alternative investments and being offered Petrus at £3,500 a bottle is not looking like a smart idea.
Legacy Trade 383, 384 And Saucy New Trade 385
Trade 383 October Can Get Spicy And The Omens Are…. Oh Wait, We have No idea!
We had a lot of fun with the ludicrous 3×1. Let’s go again and try to keep the risk level out of harm’s way, though venturing in the murky depths can mean missing out on the sunlit uplands of juicy profits. Let’s see. Again we sell 3 puts and buy 1. We sell 3 of the 7800 puts for 15 and buy the 8100 put for 45.5. Where’s our risk? sort of 7500-ish. Now that’s a fair degree of comfort with not a lot of likelihood for success. And, let’s not forget it costs us a ha’penny and requires some margin. Remember a very competent, very large hedge fund got blown up with the 3×1 trades, but with calls
Last week: 18 and 6.5×3 Just wait! ………….
Now: 24 and 7.5 (x3) We’re in profit!
Trade 384 A multi Leg Classic But Cheesy Trade
In actuality we have 14.2 trading days for the October expiry and things are looking a bit sleepy. We like the idea that FTSE may take a gentle glide down to the 8100-8200 area but of course prediction is silly. Looking at the chances of this, however, the open interest suggests this may be the landing area for expiry. Here’s the strikes and prices for a CALL butterfly.
8100 257.5 8200 170.5 8300 98.5 Remember we buy the wings, sell the body, which is the 8200 strike x2. Thus we have 356- 341 = 15. Expiry at 8200 would give us 100 so it’s not bad reward for a max risk 15
[ Should you want a bigger bang you can get the 8000/8150/8300 call butterfly for 24.5 ] (305.5, 172(x2), 68 )= 29.5 ( bigger bang for buck)
This week: 8100 214.5, 8200 133, 8300 68 Thus 214.5+68 = 282.5, minus 133×2= 266 = 16.5 A 10% profit!Obviously we’re looking for a tad more than a penny ha’penny
Trade 385 – The Calendar Zone
Having a trawl through the options chain https://www.ice.com/report/265 for October and November made me think of the following trade, using the massive time decay of near month and the cost of the next month’s spreads. Here we go: We SELL the October strangle (8100 put for 24 and 8400 call for 28) and we BUY in November the 8200/8100 put spread, those prices 95 and 68.5= 26.5. for the call spread we buy the 8350 call and sell the 8400 call 109- 86= 23. So we have a credit of 24+28= 52, and a cost of 26.5+23= 49.5.
Eagle eyed traders will note this is a small credit 2.5, our risk at 8450 and 8000. We may well close out before expiry if it goes to plan. Max profit 100, or 50.
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.
