That Was The Week DAX and FTSE hit All Time Highs. Despite the Elephants in the Room
Speechless, utterly bewildered. Our flabber is gasted. From looking for all the world like it was teetering on the precipice, FTSE got a bigger launch than Space-X and Blue Origin combined. We may be looking at a new paradigm and an unworldly new era, whether justified or not. Earnings are paltry taxation is a fiscal drag and growth in an overcrowded business world may be hard found. So the valuation here: https://worldperatio.com/area/united-kingdom/ may be playing to the balcony. As one with a bearish bias that I try to mitigate, it’s a real shocker. However, nursing losses with options means we can either a) close out and take a hit, or b) roll until the market obliges, though we may miss other trading opportunities. We have choices.
It’s deeply troubling that VIX has tanked 25% as the obvious upheavals are about to happen. However, there was a real VIX rollercoaster in December, with 30% swings, maybe it’s all good now.
In The Inbox
Some rather broader webinars this week Net Wealth had an interesting webinar: https://register.gotowebinar.com/https://register.gotowebinar.com/register/8522957185430854748?_cldee=Tq5DBvEJuxjErKKi8vXjp5eJhFdDbsMcSGHAdlfYOTEbFcWgIqQ-qGQJvj699XlK&recipientid=lead-e51417d14190ea11a811000d3ad97943-4139e780142e453b80c3e71cc8499ecc&utm_source=ClickDimensions&utm_medium=email&utm_campaign=Event&esid=2ecb30b4-6cce-ef11-b8e9-000d3ad84840/8522957185430854748?_cldee=Tq5DBvEJuxjErKKi8vXjp5eJhFdDbsMcSGHAdlfYOTEbFcWgIqQ-qGQJvj699XlK&recipientid=lead-e51417d14190ea11a811000d3ad97943-4139e780142e453b80c3e71cc8499ecc&utm_source=ClickDimensions&utm_medium=email&utm_campaign=Event&esid=2ecb30b4-6cce-ef11-b8e9-000d3ad84840
Sorry about the long link, but if you have an interest in the wider world of finance and economics this was a good watch. One poignant reminder of America’s pole position was this:
The mighty US economy can suffer all the slings and arrows of outrageous fortune, hardly missing a beat. They are fairly resilient to global events as the stats show. They don’t need Range Rovers, Burberry, or proper beer. So, is it folly to try and revive the ever flagging ‘special relationship’ or should the UK look towards the EU India and China? Let’s hope cool heads can steer us through.
Distraction Trades
ADA was $0.9367 now $1.0654
XRP was $2.4054 now $3.1491 Buyers still have an appetite for crypto. (Worrying that one quantum computer could pinch the lot!)
DAX : 1 loser, 1 no entry 3 wins nett: 450 ( that includes missing out on the Friday whopper)
UK Gilts were £15.73, now £15.93 Slight tick up 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 run for fun.
Whilst CLOSED how would it have done at expiry? A BIG FAT ZERO. How often have we taken good profits before expiry?
Trade395 Something For An Unfathomable Market
CLOSED
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.
So th Jan expiry at 8495 made the call worth 295 against us. The feb call spread 442.5- 350= 92.5 A horrible loss. (Ok we took in tiny 14.5 credit)
So here’s a risky plan.
We buy back the 8200 call 350 and sell 2 8300 calls 262.5 gives us 525-350=175, mitigating our loss to 120, but with risk at 8500. This is risky as the market can get crazier than seems humanly possible.
Trade397 Look Out Below – A Safer Play NB- February Prices
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.
Now 39.5, 23.5×2, 16= 8.5 LOSER! 2 Courses of action, close out and lose 17.5 or run it and see what happens. A third way( thank you Tony Blair) would be to close out the 8150s we sold and the 8000 put that we own for a cost of 31, and then buy the 8500 put 95 and sell 2 8400 puts 60.5. Overall a cost of 5, though we’re already in it for the initial cost 26. We would now have a butterfly worth 39.5+95 minus 60.5 x2= 13.5
Trade 398 What The Heck Can we Do?
Frankly this is such a whopping great absurdity I have no idea so if push comes to shove, I have no ideas other than: 8100 put 8800 call strangle for 20 per side. It’s better to go ahead and do something and say sorry later, is the perceived wisdom.
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.
