396W/e03Jan2025 New Year, More Options

That Was The Week We Timidly Celebrated The New Year

So, with very mixed news, a chill wind and the Christmas trees abandoned with abandon, in this corner of leafy Surrey, it’s 2025. We saw the FTSE climb with the predictability of a seasonal rail strike. Volumes are so low, FTSE can basically be moved for very small money. Political upheavals and concerns aside our humble FTSE is a fraction of the value of APPLE. There’s a scene in the film Forrest Gump where he thinks he bought into an orchard and it seems the simplest trade of all was to be like Forrest. We’re told it’s on target to be the first $4trillion corporation. The UK is worth $3.4trillion that’s our GDP, and as there are more people in the UK than in Apple, maybe we need to get busy. America seems to have one narrow view of ‘make more money’ we’d just like fairness.

I understand the consensus is that interest rates are unlikely to drop much, there seem to be many headwinds here and in the EU, and the US dollar is almost at parity with the Euro. So it’s curious that Germany’s DAX has been on a tear, up almost 20% when we hear of the woes of their car industry, though they do have some tech, unlike the UK. SAP https://finance.yahoo.com/quote/SAP.DE/has done 72% but to my way of thinking software is an enigma/mystery as I’d assume that you only need the same software we had in the 90s. OK maybe a few more bells and whistles, but the basic stuff like ATMs has worked fine. Maybe when I told PC World that software was just vanity the sales assistant’s look of bewilderment was justified.

New Year Same Stuff

Time to reflect on the content here and the well established ethos. We educate by DOING. The trades here are NOT historical or cherry picked, they are not selected by magic. The real lesson to be learned, as we show, is that options are the best tool for anyone who wishes to manage their own money and realistically make decent returns. Yes there are some hard yards to negotiate, but it’s certainly not PhD maths. OK the Black Scholes formula won a Nobel prize but we can use a free calculator. There is so much free education and now IG owns Tasty Trade, the options spread bet choices are widening while spreads may well tighten. However we use the real options prices from the exchange, Theice.com and the live prices at https://www.ice.com/report/265

We hope you like the content and enjoy the journey.

Distraction Trades

ADA was $0.8687 now $1.0649

XRP was $2.0612 now 2.4457 Buyers still have an appetite for crypto.

DAX : No trades – volume too small.

UK Gilts were £15.99 now £16.02 still OUCH! AND THRICE OUCH! This is based on the Vanguard ETF (not a recommendation)

Legacy Trades 394 and 395

Trade394 Too Late for a Dec Position, so………

Risk ON! Let’s get spicy again and look at a very saucy 3×1. We sell 3 8050 puts and buy 1 8300 put. Risk at 7900-7950. Logic of the trade- well purely that the cost is 78.5 minus 24×3 =6.5. The reward is a maximum 250 and while volatility is low, after December expiry the juice will drop put of the Jan options, assuming no catastrophes.

I had wanted to demonstrate a classical Christmas Tree -buy one option, sell 3, missing a strike, then buy 2 further out but not as wide. Example buy 8300 put, sell 3x 8050 puts and buy 2 7850 puts. This would increase the cost by 13 x2,=26, which is ok, but a 500 point drop? We could, at a later date, get further protection that may be better value. We will run this hypothetical position alongside the 3×1

OK- how well did we do? 8300 put 211 and 8050 puts (71×3)= 213 Doubtful anyone saw this shocker of a week, and that ‘expiry’ but we run it. So minus tuppence and it cost us 6.5

The Christmas Tree? 7850 puts 30×2 = 60 -2 so it’s actually been ok. Initial cost 32.5 so we’re good

Our spicy spread: 156 and 35 x3 0r for the Xmas tree we have those 2x 7850 puts at 13.5

So, 156-35×3=51 ( cost 6.5) Xmas tree 51+27=78 ( 32.5) =45.5

Now 15 x3 and 95.5 =55.5- 6.5(initial cost)= 49 Yay!

Xmas tree those 7850 puts now 6.5×2=13+55.5 =68.5- 32.5(initial cost= 36 also YAY! Both trades have done enough to close out but we runtime for fun.

Trade395 Something For An Unfathomable Market

Well this goes against the grain but it’s legitimate strategy called a synthetic. We are emulating the underlying instrument with a short put and long call so exactly like the underlying we have a Delta of 1. We sold the 8100 put for 89.5 and bought the 8100 call for 103.5. Honestly this is the polar opposite of my way of trading but it’s Xmas and I have no idea what the immediate future holds. ( With the up day/down day count at 130 up, 118 down there’s still room for a few more up days) Time for a mince pie. HAPPY CHRISTMAS

Now the Call is 112 and Put 48, as suggested we’d have taken anything around 60, and we do not run these. Christmas Eve seemed to have been the peak for this.CLOSED

(Yes if we’d run this we’d have doubled our profit, but this trade is not designed for that and can turn on the proverbial sixpence)

Trade 396 Calendar/Time Spreads

Our weapons of choice:

Jan 8200 call 83.5 Feb 8100 219, 8200 150 call spread. So we sell the Jan 8200 call and buy the Feb 8100 call and sell the 8200 call (83.5 minus 219-150)= 14.5 Thus we have a small credit 14.5 but that’s not the point. This is a trade with some flexibility and of course we have done these many times, it’s a combination of theta and a fair chunk of protection. We have zero downside risk, which is not a bad thing. Let’s hope calm heads prevail as the chances of economic growth are <zero, or slightly>zero.