That Was The Week -It Got Personal FTSE is Out to Get Me!
We are NOT, repeat NOT an advisory site, we are purely educational.
From the low 20 December of 8000 the FTSE has moved 8.5% in the wrong* direction. I ask no forgiveness for my cynicism but if reason does not prevail then something else is at play. I do confess to not having a clue in this regard. This novel romance for our dreary little stock market seems to bear little relation to events. My personal pension fund is with a well known SIPP provider who charge low fees. They took it upon themselves to point out that nearly all my funds have been moved into money market funds, and in the long term this may not keep up with inflation. I pointed out that buying stock markets at such gross over valuations does not, in my view, make sense. I suggested America had voted for its own demise and I expect mayhem any day. Nice of them to be concerned.
*My opinion- not worth a light apparently!
However, being on the sidelines is also a position. Our commitment to posting a real trade every week is not a rational strategy as there are times to step back and take a break. Curiously this has become a selling point with the many gambling apps that delight in taking your hard earned. So, I may be wrong, and most likely I am, but the lessons of those who bought at all time highs are a litany of ill judgement and misplaced optimism. The markets rise on lies and plummet with the truth.Lies have never tanked the market. Just my 4 pen’orth.
In The Inbox
I am a history enthusiast, despite my educators’ perverse mission to make me hate it at school. History is fascinating and this was a story that I felt related to present day, albeit loosely. I hope it make interesting reading and I will not spoil it by pointing out the lesson here.
Not an intentional war theme but this has been under my radar while I find the drugs trade abhorrent and a betrayal of all humanity. I may speak out of turn, but for me it’s vulnerable, weak, or vain people who find solace in drugs. Hard to sympathise at a distance. Anyway : https://www.mauldineconomics.com/global-macro-update/the-opium-war-in-reverse#share
I’ve often praised John Mauldin, though he is a curious supporter of far right politics, yet he’s charitable and decent. He’s smart insightful and quotes from many sources that he knows first hand, so always worth taking note.
Distraction Trades
ADA was $0.9793 now $0.9341
XRP was $3.1166 now $2.9986 Buyers still have an appetite for Ripple, while Cardano limps behind, again under $1
DAX : 2 losers one break even 2 wins. Nett 200
UK Gilts were £15.99 now £16.10 blimey! Slight gain, again. This is based on the Vanguard ETF (not a recommendation)
Legacy Trades 396-399, and now……400
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
However the FTSE is rising, fact is that somebody has the hots for it.
This is woeful MASSIVE LOSS 293 8200 call is 487, 8300 calls 390 (x2) Remember we could have swallowed the 78 loss
We run, for fun and see what we can do ( roll into March)
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)
Now: 8300 10 8150 6 8000 4, gives us 2
The third way 8500 put 26 8400 15 8300 10 gives us 6
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
Now: 30.5 for the 8800 call and and 5 for the 8100 put
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
Apologies, I sent an erroneous link to the options creator, but this has been a disaster. We have 206.5 and 26 for the straddle 8500 call and put. We have 295.5 and 64 for the wings. So here’s the maths: We sold 2 straddles which now cost 232.5×2= 465. Our long strangle is worth 359.5 a loss of 105.5.
That could have gone better.
Trade 400
I’m stumped. Honestly this is completely new and, frankly, terrifying. Let’s tempt fate with a short 8800 call at 30.5 and a put ratio spread buying the 8600 for 47 and 8500 for 26(x2) gives us 5, +30.5 =35.5 Credit We have risk at 8835 and 8364.5
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.
