That Was The Week Will the ‘Weave’ Guy Melt Down ?
So, it’s a matter of concern to us all that the US is a stable friendly entity. However, stable is not a word that springs to mind currently and it’s interesting to note the calm of markets. But, there seem to be dark clouds gathering, we are told of the problems with US regional banks and troubles close to home too. Yours truly was saddened to see SKF close its doors. So this will only mean something to those of us who fixed their own cars and SKF bearings brought a certain reassurance. A solid traditional business since 1911. https://www.bbc.co.uk/news/articles/cg4lydrqd13o
However, it’s a different world and surely electric cars will use fewer bearings, but the cost of production against China and other competing nations cannot be matched. So, perhaps competition in global markets makes ‘widgets’ the UK’s least viable industries.Service industries account for 81% of economic output. It’s a small comfort that our music business is still doing well globally. Arguably we still have a rich pool of talent.
Monumental Blunder.
It is with some contrition that apologies are offered re: last week’s closing trades, as 386 incorrectly referred to October options when the long side of the trade is in December and the shorts in November. I had cause, additionally, to reflect on the way trades are presented. Traders new and old may find things confusing. Our aim here has always been to simplify options. So, we will look at improving presentation. My own library of trading tomes contain a litany of bewildering formulae, diagrams and propositions. Short cuts are vital to get us from the proposition, to the conclusion of the trade. Thus CME give us the calculator, https://www.cmegroup.com/tools-information/quikstrike/options-calculator.html the ice.com https://www.ice.com/report/265 gives us live prices and for graphical presentation we use the free site: https://optioncreator.com/stuskul
We’d also defer to Tasty Trade for their insights and presentations. HOWEVER! even they trip over themselves when presenting trades. We have a picture in our head that may not translate particularly well to others whose experience is different. My own journey was a booklet from Charles Schwab and by coincidence, a short course from the US company Optionetics. George Fontanills the founder passed away some time ago, but his mantra was always’ manage your risk’. The course itself was of limited use and they had done no homework on the UK market. The manual, the cassettes, and VHS tapes were some help. However nothing prepares you for the day you trade real money. NOTHING!
In The Inbox
So some agreement re the upcoming election and the curious state of the market https://www.cmegroup.com/newsletters/infocus/2024/10/week-in-review.html#key-takeaways
The term structure chart show the volatility getting spicier after the election date.Trading 212 also express this view. https://youtu.be/76q6pj3BuDc?si=nW38dGuWhaDpEaM6
So what is going on? Calm before the storm. Let’s not pretend, both candidates are market friendly, one is a maniac, however. Talk of unlimited powers for a president would mean the end of an independent and wise Federal Reserve. THAT is a grave concern. And frankly the bewildering drivel from a demented old man is offering no clues as to the future stability of the US. It’s a real concern, so maybe time to be on the sidelines.
Distraction Trades
ADA was $0.3535 now $0.3298
XRP was $0.5468 now $0.5136 There seems to be a rather thin veneer of credibility for the smaller Cryptos. Are they worth anything?
DAX : 1 no entry 1 loser 1 break even 4 wins 340 points. Again unexpected success. This is a really basic system.
UK Gilts were £16.80 now £16.59 The expectation in a rate cut had boosted Gilts. Not now!
Legacy Trades – 386, 387 and new kid 388
Humble Apology Department.
Sorry to say I had suggested that Trade 386 was using October options. That is not the case, so it’s not a loser it’s a running trade using November options.
Trade 386 November And The Ominous US Election Cloud
Sticking to the knitting, and regulars here know we love a put ratio spread. The choices are huge but trade selection comes down to: Do you want a big chunk of premium? Are you happy to place a low or zero cost trade that could give bigger rewards?. Where do you think is an acceptable level at which to have risk that needs to be managed.? This time it’s a low cost 8200/8000 put ratio spread and as it is long at 8200 and short x2 at 8000 this means risk is at 7800, currently about 6% below the futures price. We pay 85.5 for the 8200 put and collect 40.5 x2 for the short 8000 puts. Our cost is thus 4.5 with risk 6% below the market, zero risk from 7801 upwards. Should the market go very South, we’ll look at adjustments.
Previously stated: Surprisingly a LOSER We paid 4.5 so we could afford to lose one of these every month forever! (WRONG!)
Now: 71 and 25.5 x2 =20 (we paid 4.5 ) Yes, you could close out having made 300% but as a rule we run these to expiry
Trade387 What to Do With A legacy Trade
We will start from the position of using the spreads we own from trade 385.
8350/8400 calls (109 and 83.5) and 8200/8100 put spread (47 and 30.5)
OK here’s PLAN A. This requires that we sell the long call and long put for 109+47= 156. We BUY the Dec 8300/8400 call spread for 203-143= 60, and the 8200/8100 put spread for 84 -63.5=20.5. Now the short legs of our ratio trades ( effectively a strangle) are in November and the long spreads(effectively a long iron condor) are in December, we have, in addition, a credit of 156- (60+20.5)= 75.5.
Confused? I suggest reading through in stages. 1. Selling the Nov long call and long put and 2. Buying the protective spreads in December. We have risk at 8500 and 8000
Given that we have some mitigation with theta as these are spreads, we could look to time the put side better. Next week may be a very different proposition.
This week, we own the Dec 8300/8400 Call spread ( 88.5 and 55.5= 30) and the Dec 8200/8100 put spread (116 and 86= 30) We are short the 8400 call ( 34.5) and 8100 put (42)
NB: We have our credit from trade 385 of 75.5
Trade 388- The End of The World Strategy!
Ok, maybe an exaggeration but the good old butterfly is a solid trade where your risk is limited to your outlay. We want to buy a November put butterfly
We buy 7700 put 9.5
Sell 2x 7900 puts 17×2= 34
We buy the 8100 put 42
So for the princely sum 0f 17.5 we could, in an extreme drop make 200. Risk as explained is 17.5 as the strategy comprises a short spread and a long spread which, outside of 7700 and 8100 cancel each other out.(200 apiece) Sometimes at expiry the nearest the money strike, the 8100 here, can be closed out with very remote chance of the market dropping 200 points in the 0800-10.20 time period. Buckle up.
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.
