That Was The Week FTSE Got Reined In.
America announced its plans, suddenly everything is positive. My cynicism may be misplaced but I cannot see the re-election of a man whose epic failures last time have been airbrushed out of history. The crimes were not prosecuted, which does not lessen the facts and the evidence. Could this all resurface in another form? The majority of Americans did not vote for this relentless pursuit of the US$. Our own government is at variance, clearly, and seems to sway with the breeze and tax rules now seem more palatable. 10,800 millionaires left the UK in the last year. This apparently equates to 530,000 average taxpayers. We always say that the UK economy is not the FTSE 100. However with fewer pounds in the economy you have to think it will have a detrimental effect. Can we still rely on the good old FCA’s ‘smooth operation of markets’ mantra?
A Bizarre Week
Martin Luther King Day was relegated to the back benches as the inauguration was the biggie. We also learn of certain Crypto currencies making and breaking a lot of people. While there have been strides made to make crypto respectable, it’s still the Wild West. There’s a shocking video doing the rounds of some poor soul losing his grandpa’s $1 million, buying a massive amount of calls:
https://youtu.be/RYxNkOp0WiQ?si=748PTOie5rYoliFU
Now you do not need a brain to buy calls but you do need a very good reason to do so. Given the track record of the underlying, personally a barge pole would not provide sufficient distance. Of course the other side of the coin is someone making $$$$$. If you don’t know this film and the crazy story it’s worth a watch: https://youtu.be/bmr8YmwnZ3w?si=uVJxhzQ3EB1mgToa
OK maybe not the whole thing but the trailer and a quick Wikipedia look up tells the story.
The rest of the week we had Davos, an epic storm, and record number of failing businesses and that is a real heartache, as high streets now proffer Turkish barbers, nail bars, vape stores, charity shops and estate agents. For those of us who were around in the dark days of 1978/9 this has an eerie unfamiliarity. It’s a very different world, and failed starry eyed retail start ups have littered our towns while ‘cash friendly’ businesses seem to do ok. It doesn’t do, to dig too deep. Some might say these are not legit businesses.
In The Inbox
With a weather eye on property abroad, the emails(plural) seem to arrive daily and this looked curious, and interesting:
With a perverse sense of humour one might think that offering disincentives to people wishing to come to the UK might solve our immigration issues. One might wonder if Labour have considered such an idea. Balanced with incentives to move to those less desirable areas, this may be the solution!
Distraction Trades
ADA was $1.0654 now $0.9793
XRP was $3.1491 now $3.1166 Buyers still have an appetite for Ripple, while Cardano limps behind
DAX : Bonkers! 4 wins one break even, nett 770 (email if you’d like screenshots)
UK Gilts were £15.93 now £15.99 Slight gain, again. This is based on the Vanguard ETF (not a recommendation)
Legacy Trades 396-398, and now 399
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 the 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.
Risky plan update, the 8200 call 328, the 8300 calls 239.5= 479, gives us 151 -could be worse and best case 8300 might not happen but 8400 would do nicely
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
Running the trade gives us(Puts) 8300 31.5, 8150 16.5, (x2), 8000, 10= 8. (initial cost 26)
The third way(8500/8400/8300 put butterfly) now gives us 86+31.5 minus 51.5×2 =14 (initial cost 31)
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.
this week: 10 for the 8800 call and 14 for the 8100 put so we are doing ok as our initial credit is 40
Trade399 a Challenging new Trade Idea, Gearing Up
So, with a firm conviction that the worst trade is a long straddle, we look to test that hypothesis. We take a standard iron butterfly which sells the straddle and buys the outer ITM options. BUT! We sell 2 straddles instead of 1.
To clarify, we BUY the outer ITM Call 160, and Put 174.5. We SELL 2 each of the 8500 calls and puts. 95×2, 86,×2, gives us 334.5- 362, gives us a credit 27.5
Now, I’m going to be cheeky here and suggest you plot this yourselves, bearing in mind the buy/sell and quantities involved. You will see the profit zone giving a maximum 300 + our Credit. Is there a downside? We’ll address that in due course. So here’s the graphical calculator https://optioncreator.com/new
CAVEAT: This is not recommended and may get in a right pickle! You’re all aware that this is purely for educational purposes, and prices were at close on Friday: https://www.ice.com/report/265
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.
