That Was The Week We Avoided(!) Recession
So, FTSE managed a couple of days on introspection amid the crazy action, though more ATHs preceded the down days. However other All Time Highs are available. So putting the FTSE in context, since the lows of 2003 the DAX has multiplied 11 fold. FTSE? <3. France and Italy have seen cash piling in amid the weekly $50billion of share buybacks. So why would corporations pay top dollar for their stock? Nowhere to go with expansion, and R&D all seems to be in the hands of AI. While torrents of cash have poured into AI, the Chinese make for pennies what the West pays $1 million for. In addition so much is happening in the tech front it may be that nobody knows which way to jump. Hydrogen/electric/internal combustion. Yours truly was mightily impressed with a video of flying cars, including one powered by compressed air.
New materials, new tech, there are people proclaiming this may be the next Industrial Revolution. Regulators will have to try harder to catch up. Can we justify autonomous vehicles when driving is not much of a chore, and it provides employment? There will be flying cars, there will be regulations, things do not get uninvented and market forces always win. Zipping across the Channel for lunch in France or individual travellers hugging coastlines with their 200 mile range 120mph flying cars. Who could resist? Meanwhile back to normality:
Hilarious Headline of the Week
Much as I respect the Guardian they aligned with all the other media players with this bit of comedy.
Recession fears are probably about 23rd in line with other fears, as the new era of bonkers lurches ever chaotically. Ill thought out, and knee jerk executive orders have unsettled most right thinking people. However let’s stick with the knitting and talk options. So while we have a DAX play which seems to do rather well, there are inherent problems as the entry rules are quite specific. In fact this led to a discussion with a couple of fellow traders who’d suggested 0DTE options. It was a short discussion. Using a spread bet, the options prices had such wide bid/ask quotes it seemed like a very irksome way to trade.Example a near the money call was quoted 24-30, so you’d buy at 30. See the problem? You can be very very right and still lose money. I have no experience of 0DTEs but I’d welcome other opinions.(see below )
In the Inbox
Nothing much to report this week. There was this: https://medium.com/@paullenosky/i-am-a-professional-trader-and-i-will-teach-you-how-to-make-money-in-one-article-not-clickbait-e4f43ccbb85d
I do know a trader and mentor who just uses MACD. Each to their own. We like FTSE as it’s dull, in normal times.
Distraction Trades
ADA was $0.6862, now $0.7881
XRP was $2.4007 now $2.7903 A little up move for the crypto minnows. ADA is not looking well
DAX : 4 Trades 4 wins 290 nett (missed 2 big moves)
UK Gilts were £16.21 now £16.15 This is based on the Vanguard ETF (not a recommendation)
Legacy Trades 396-400, and now……401
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
Was 8200 call 495 and 8300 call 397 x2 gives us 299 Ouch!
Now: 518.5 and 419×2 gives us another slap in the face: 319.5 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
This is frankly so far out of the money we’d close it and take the hit. LOSER!
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
Was: 30.5 for the 8800 call and and 5 for the 8100 put
Was : 24.5 and 3.5 It’s not a happy trade but it’s making a profit
Now: 13.5 and 1.5 =15. Close out as we took in 40 so nice profit Win!
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.
Last time:the straddle is 293(x2) our LONG strangle 423 gives us a loss of 586-423= 163 ( OK we took in a lofty 27.5)
223.5 and 7 for the 8500straddle x2. Gives us 461. Our LONG strangle: 320.5 +24= 344.5 loss 89 Not recommended previously stated but we run it
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
Was: 24.5 and 34.5 minus 18.5 x2= Debit 27, our Credit was 35.5 A tiny glimmer of hope as our losing streak continues to dominate
Now 13.5 and 15, 7×2 =14.5 We soldier on but it’s doing ok (credit 35.5 remember)
Trade 401
Let’s go with the esteemed Professor’s straddle
Feb expiry: 
As you see the February prices at the top are miserably low, so we’d go with the March expiry but here’s the Greeks so we can watch the gamma /theta relationship. You can see they are both elevated for the Feb expiry.
This week: It’s done ok 
So the prices for Feb straddle –we sold for 132, now 95. March straddle we sold for 239, now 219.5 However as an exercise check out the gamma and theta on these puppies! Both trades are ok, but Feb trade is clearly the winner.
Caveat: Really not recommended!
Trade 402 We Use March Prices
An old chestnut and a safe trade with fair chance of doing ok. It’s the iron condor. We sell both side of the market but with short spreads. So the prices nearer the money are the options we sold. And here we choose 50 point spreads. Calls: short 8850, 47, long 8900, 34.5. Puts: short 8550, 59, long 8500 47.5. So as a credit trade we take in 12.5 for the calls and 11.5 for the puts. We take in 24 and our risk is 50-the 24 credit It is a dull trade with limited potential as it ideally needs to see both sides at expiry got to zero, avoiding costly commissions. However there is an ex-Harvard man, Jared somebody, who made his first $million in his early 20s with these. He may still be in the same business, but these went pear shaped for a while as risk/reward no longer stacked up.
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.
