That Was The Week Everything Looked a Little worse
So the world’s ‘richest’ man is taunting our glorious leader and there is more turmoil from Argentina to Venezuela to Zimbabwe. We don’t subscribe to conspiracy theories. However, it does seem the chaos and division around the world has been ramped up. By whom? The unseen hand of the enemies of democracy? 2024 Saw just about every incumbent administration voted out and veer right. Except the UK, and that vote would seem to hinge on the rejection of greed and the protection of health care for all. As we have been offered a paltry deal with China, it’s a real worry that a minnow like the UK will really be placed at the back of the queue. We have little to offer the mega economies. They don’t need us.
Bias, Naivety, Or Fact? A friend referred us to this: https://youtu.be/w7po69QCHVs?si=mxSkXK6fG9U-34JP
There’s a lot of bad news to take on board but buying UK stocks is only for the bold. As a hapless investor I bought PRU and BP and watched them drop 20% or so in short order. Another shocker was THG, the Hut Group, which seemed to have a good business model. at IPO it was £7, I bought at £3.50. It’s now 42p. Is it any wonder the man on the Clapham omnibus regards the stock market as a sham? The US has so many great stocks, now massively overpriced, but pension funds have done very well. With a government hellbent on punishing investors, is it any wonder yours truly is not bullish? (That does NOT mean I’m right!)
In The Inbox
So this does buy in to my own personal doom and gloom bias but worth a read https://www.ivolatility.com/news/3045
Sorry it’s a huge link but there’s something for everyone from those fine people.
Distraction Trades
ADA was $1.0649 now $0.9367
XRP was $ 2.4457 now $2.4054 Buyers still have some appetite for crypto. (Worrying that one quantum computer could pinch the lot!)
DAX : 2 losers, one no-trade, one break even +30, 2 wins on Friday 70, and 130. Nett 170
UK Gilts were £16.02 now £15.73 THRICE OUCH! This is based on the Vanguard ETF (not a recommendation)
Legacy Trades 394, 395, 396
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
Was 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.
Now the 3×1 is 44, cost 6.5, profit 37.5, the Xmas tree is 53, cost was 36 profit 17 -Expiry might get interesting if it’s like last month.
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)
NB Yes this would have made £££££ more this week.
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.
Now the 8200 call for Jan 84.5, Feb 8100 235, 8200 call 164 gives us a debit 13.5 Caveat: This was placed before the crazies bought the market.
Trade397 Look Out Below – A Safer Play
While we don’t love butterflies there are times when a modest trade with a modest return might be the prudent way to go. So as in the traditional sense we buy the 8300 put x1, sell the 8150 puts x2, and buy the 8000 put x1. This gives us 131.5+42.5= 174 minus 74×2= 148, gives us a cost of 26. Logic of the trade? Max profit 150-26=124, max loss limited to the amount paid 26. We may get a little spicy with this and do some adjustments, and comparisons with letting it run.
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.
