That Was The Week The US Made 50 Record Highs
I was trading(badly as always) back in the last century and distinctly remember the FTSE being many times the price of the S&P500. In 1999, the FTSE 100 reached a record high of 6,930.2 on December 20, which stood for the next 15 years. By comparison the S&P500 was 2,600 in Oct1999. However it’s a bit like comparing a minnow to a pike. America is a glaring example of successful capitalism but not without cost in human terms. Yours truly is rightly proud that the UK values humans over money. We treasure our clunky inefficient NHS as we love the principle of healthcare for all. Americans tend to shoot their healthcare insurance company bosses. While the loss of life is tragic, the point being made should not be ignored. The US faces division more now than since the 60s.
Russia is running rampant installing right wing despots. Romania negated their clearly Russian rigged election, while ironically it has been fully embraced by the ‘land of the free’. We cannot change global politics but market moving events now need to be almost on the scale of global warfare. A friend once told me that political events have only a passing effect on the markets. A dip, maybe a pause before the buying frenzy resumes has been the norm. Doubtless 2025 will see some mighty political events, but is ‘be prepared‘ the mantra of a bygone era? I have welcomed market dips so often and expect them at least twice yearly. They have been good to me and I have often mulled over the idea of amassing a great chunk of puts over time. These can be the product of calendar spreads, so, little or no cost*.
*remember we can buy very far into the future here’s December 2030 prices! https://www.ice.com/report/265
In the Inbox
I get a panoply of curious missives. Market pundits, traders, predictors, technical analysts I never dismiss them out of hand. I also do not subscribe to paid services as I feel that may lead to a bias. I’m already easy prey to the latest headline, so long as it suits me! This is why we use Friday’s real closing price to suggest a forward looking trade, though others may find this helpful: https://www.chartswithjake.com/2024/12/chart-of-the-day-with-jake-bernstein-december-6-2024/
I mistook this Bernstein for the author of :
A freebie here: https://www.wealth365.com
The first one is a big 6 day event, so pick and choose. The second one is from Craig at CME and a glowing article on the joys of ratio spreads. We learn all the time, even though I’ve been trading longer than these experts. Clearly they have the grey matter and discipline of working inside the industry. I’m a complete outsider, but I love the options world .
Distraction Trades
ADA was $1.0934 now $1.2104
XRP was $1.8882 now $2.4416 Buyers still have an appetite for crypto. Guess who missed the bus again!
DAX : 2 losers, -30×2, 3 wins Nett +420 ( I have the screenshots, and curiously a lot of these occur at o8:00 am UK time)
UK Gilts were £16.54 now £16.49 Well it would do that wouldn’t it. No prizes but the yield is good -based on the Vanguard ETF (not a recommendation)
Legacy Trades 389 unto 393
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( December) 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
Previous week: 30.5, 10.5(x2), 4. Gives us 13.5 Christmas is coming !
Last week 8300 call 88, 8450 calls x2 31.5, 8600 call 10 Gives us 88+10 =98, minus 63= 25 We’re in profit but it runs to expiry
Then: 8300 call 81.5, 8450 calls x2, 24, 8600 call, 5.5, gives us 39
Now:8300 call 69, 8450 calls 14, 8600 call 2.5 Gives us 71.5 minus 14×2= 57 WIN Might be the sweet spot so we’d close out but run it….for fun. Remember it cost us 14.5 so this is BIG, though 150 is max possible
Trade390 Can we use Legacy Positions again?
Trade 387 leaves us those two spreads that we own, so we have zero risk and could run them, with one, possibly both making no profit. Or……….
We leave the 8300/8400 call spread for the Santa rally, it’s only worth 15.5 and could make 100.However, the put spread… we sell the 8200 put that we own, for a massive 168.5 and be buy in January the following put spread 8250 216, 8100 137, for 79. So we have a handsome profit(168.5-79= 89.5) still and another spicy calendar ratio trade. Our risk is at 7950 and nothing is set in stone. Santa may not give us the rally this year.
In summary we are long: Dec 8300 call. We are short Dec 8400 call Dec 8100 put. Long Jan 8250 put, short 8100 put.
Here’s the graph of the position https://optioncreator.com/strt35v
Last week: The December call spread 88-46= 42 (Remember we inherited this and run it for zero cost). The short put Dec 8100 37.5 our LONG Jan put spread 101-61.5= 39.5. In credit for 2
Was : December call spread 81.5-37.5= 44. The short put Dec 22.5, our LONG Jan put spread 8250put, 82.5, 8100 put 47.5= 35=12.5 credit
Now: Dec call spread = 69-25=44. The short Dec 8100 put 10, the Jan put spread 60.5-32= 28.5. Overall a credit 18.5
Might be prudent to close out the call spread for 44. Remember the put spread owes us nothing as we took in a huge 89.5 credit
Run for fun? Why not.
Trade 391
So, currently we have a long call butterfly, a long call spread and a calendar put ratio spread, shall we try something nuts? Let’s go naked with a strangle.
Here we SELL both a naked put and naked call. It’s not as bad as being naked in one direction and we have simple exit criteria in the event of a problem. IF the premium on one side trebles, we close out and create a new trade relative to the new market level. Tasty Trade have long been advocates of the 1 sigma strangle, which means using options with a Delta around 0.16. It’s simple, we have a plan we take in a credit of 45.5, so if the puts, for example, go to 73.5, we close out. Our loss is 18, we look to place another short put and possibly roll down the call.
Entry criteria? The levels are the most recent extremes of Bollinger bands, the Deltas are around .16, the premiums are decent and we are in the big time decay period <30 days to expiry.
Was 14 for the put and 15 for the call =31 We sold this for 46. So, we’re 15 to the good. Boring, predictable? Profitable? All three, mostly.
8000 put 6, 7500 call 7.5 WIN We’d close out and take the 32 nett profit We run for fun
Trade392 November fades (but the Weather Gets Weirder)
It’s now a choice between December and January expiries but with the holiday looming it’s 48 days away but only 32 trading days
This is NOT a recommended trade as entry criteria are not public domain AFAIK. Price Headley the acclaimed trader and author of many options books used to say the following: On occasion it is advantageous in a calendar spread to sell the far month IF volatility is skewed. A conventional calendar spread is simply buying the far month and selling the near month because of the time decay. Here we see higher volatility in the far month Jan (to be expected) and hefty theta in the near month. BUT, we have 2 front month(Dec) calls giving us an overall delta of 84-46= 38, or .38. In addition we have Gamma of 21×2 versus 12. This means if there’s a big intraday move in the next few weeks, the near month calls will move far more than the far month call. It needs a big rise.
The numbers here: 114.5 and 56.5 x2= 1.5 Credit
We have realistically a week or so for this to do anything and it’s purely for demonstration and NOT a trade I would take without more of Mr Headley’s knowledge. It may get ugly! ( I hope it does!)
Here’s how it went:
Mon: 59.5 x2 against 121
Tues:88.5 x2 ” 152
Wed:67.5 x2 ” 127.5
Thurs: 68 x2 ” 131
Fri: 43.5 x2 ” 105
Spot the winner? Tuesday! 88.8.5 x2= 177 minus 152, gives us 25 nett profit. CLOSE and be thankful! And yes, it got ugly by Friday. We’ll run it for fun. PURELY for fun.
Trade 393 End of Year Shenanigans
So, 9.2 trading days to December expiry, but it’s looking a bit ‘off ‘. Let’s speculate that expiry will be at 8300 and we honour our chums across the pond at Tasty Trade with a Jade Lizard. We sell a call spread and a naked put, BUT……. we should take in sufficient premium that if the market takes off we don’t lose anything. So it goes like this:
We buy the 8350 call 43.5, we SELL the 8300 call 69, and we SELL the 8200 put for 20.5. This gives us a nett credit of 46. Keen observers will note the short call spread can only cost us a maximum 50 (8350-8300) so the worst way to the upside we could lose 4. To the downside we have the credit 46, so risk at 8154. Not my favourite trade but so often we see these work out.
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.
Hope you can see this message
https://cboe.zoom.us/webinar/register/WN_7m09acqqR9m2GfCXseVIjg#/registration