389 W/e 08Nov Normal Service and Glidepath Resumed

That Was The Week America Voted For Their Own Falsely Held Belief.

So, it’s no political bias to point out that Trump’s track record in business and in politics has always been a toddler tantrum. Malignant narcissism is not a quality to be admired. Crimes, that corrupt judges managed to kick down the road that would happen for no other person. To this simple minded fellow it seems like something has gone horribly ‘wrong’. However in context, 2024 has seen voters in all of the rich nations vote out the incumbents. I do have a bias, unashamedly. I do believe in democracy and fair play. So, we can add crazy  to the mix of AI, algo’s, quantum computing, electronic HF trading, and cartels. We now have a far more opaque picture of market action. On the plus side all those elements may cancel each other out.

FTSE has resumed the glide path and despite the curious malfunction of theice.com last week  it was simply a minor annoyance. Yes, there are times when you really want to close things out. I tried to close out all my positions prior to the US election as I feared civil war. However we cannot rule that out, there’s more to this than meets the eye. Thus, our supportive readers may wish to know that I closed out all positions for a handsome profit this week. So, while I freely admit I messed up badly back in March and within a few weeks took a holiday. FTSE punishes the presumptuous! I had been churlish in thinking that our tawdry little index would drop again. So dragging on the misery of being underwater is not smart. However cutting losses, it turns out, is profoundly important. Who knew?

Analysis, Licking Wounds, Looking forward.

So, what’s wrong with this week’s graphic? Eagle eyed observers will note the downtrend in FTSE as volatility drops out of the market. Not standard fare. However,  US markets are a very different beast, and we have had low volatility for some time. Although Bollinger bands on FTSE have widened,  how helpful they are is a matter of opinion. We’ll look at vol in our latest trade. On a personal level I think I have proved this year that even doing something as dumb as running losses is actually ok. Relatively. So what really happens is that you lose the ability to trade freely and make a considered choice. The gift that keeps giving, as most of us know, is: rolling trades . And in particular it’s surprising how much extrinsic premium you can pick up. I wonder if anyone has done a study of rolling  ITM (in-the-money options).

Here’s some fun numbers. If you’d sold the current month 8100 call and rolled on Monday of expiry week From July, you’d have taken in 100, and rolled for 145,187,196, then closed out for 84 you’d be a happy bunny. We’d see something like  (100+ 45+42+9) -84. Profit 112 over 5 months. If you were a market timer you could have sold it in May for 360! This is not a strategy nor is it particularly profitable, in fact it’s a poor return, but it’s not an outright loss of 100. I think it’s fair to say this is the ‘stopped clock’ trade. My bias towards the short side means I’d be reluctant to sell puts in the same way. However there are many put sellers who do this until they get blown up, unless they have huge margin. Short stranglers of course never want to be in-the-money.

In The Inbox This Week

First up, November 14th, a CBOE invitation https://cboe.zoom.us/webinar/register/WN_heri6Z9lQl2piaMZf_LiKQ#/registration

Next, while I am unable to post the full content of the email, this from Incredible Charts:

Amazing how this information didn’t surface before. For clarification, it’s how consumers answer a number of questions. https://tradingeconomics.com/united-states/michigan-current-economic-conditions

Distraction Trades

ADA  was    $0.3547 now $0.4390    A bounce, is this the new ‘must have’ crypto?

XRP  was   $0.5104 now $0.5493      Cardano and Ripple get some love. Who knows what’s going on? 

DAX : 9 trades, 5 wins, 3 losers 1 break even Nett 1,11o ( This is actually getting silly and these are paper trades, so exists are arbitrary but overall there’s plenty of wiggle room) 

UK Gilts were   £16.30 now £16.31  The budget battered Gilts. What will it take to see them back in favour ?

Legacy Trades –  386,7,8 and new kid 389

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.

Was: 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

This week : 138 and our shorts:  23.5 x2, gives us a great profit 91 -we paid 4.5, so nett 86.5   Close out ( we run it for fun) WIN!

 

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 

This week: the November call  1 and the put  64  (we sold these, remember) Dec spreads that we own:   the calls 40-21.5= 18.5, puts 185.5 and 130.5= 55. Overall, the position is : 73.5 minus 65= 8.5

Moving in the right way as theta works hard now.

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.

This week: WIN!   Those prices: 7700 put 3.5, the 7900 puts 9, the 8100 put is 64.5. This gives us 3.5+64.5 = 68, minus  9×2=18= 50. Frankly we’d close out ( we run for fun) and take the very comfortable WIN 

Trade 389 What Can We Do In Light of the US election? Get Back To Market Normality

The Xmas effect or Santa rally, is it on this time around? Most market watchers know about this and the markets generally rise as the numbers show the economies are doing ok. We will go with a CALL BUTTERFLY

Here’s the trade: We buy the 8300 call for 40. We sell 2x the 8450 call 16 x2, and we buy the 8600 call for 6.5. Our cost therefore: 40+6.5 minus 32= 14.5

The ONLY risk here is our premium paid 14.5 

 

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.