That Was The Week Crazy Got Scary
Dictators got busy dictating and demonising their critics in several nations. Our left wing government went full bore right wing. Truces and ceasefires failed to hold. And options and futures expired with much muttering about the Future and the cash index being at variance, albeit marginally. 8643 was the number FTSE 100 Expiry Index (UKXSP.L) The one minute chart shows a radical drop below 6000, but we cannot know if it means anything. However this number was in line with expectations at the 10:01 auction. We hope this served us all well.
With all the turmoil in the world our options Universe centres around interest rates and inflation and these were in line with expectations. J Powell at the FED probably garners more respect than our own governor Bailey. Hard to know what support our government has for our stock market but the US has the Treasury ‘plunge protection team’ and the ‘FED Put‘. Allegedly.
BTFD( buy the f****** dip) has so often been the mantra for US stock traders and has served them well, but is it different this time? We seem to have a new world order that looks as reliable as at the British climate. Old treaties may give way to open hostilities and we cannot ignore such, but like changes of presidents the market seems somewhat inured to the effects. The second Iraq war started an almighty stock market buying frenzy for years. War is good for business.
Trading is the Hardest Easy Money
To an outsider seeing us traders sat at a screen, they can be forgiven for thinking it’s an easy life. We’re not dodging bullets although in a metaphorical sense we are in a battle. For fun here, we trade DAX on a 5 minute chart so the trades are intra day and always closed out before the cash market closes. This week was a wake up as two monster trades went ballistic without yours truly on board. How this happened is simple. 1. Negligence 2. Dogma, sticking with a 30 point stop when 40 is more appropriate when DAX is doing ± 2-300 points most days. When people sell their winning methods it troubles me as we have a winning method but it demands an enormous amount of focus. It requires no distractions.
Options give us such luxury as placing an order for the day so we do not need to be at the screen, or even on the same continent! When trading spreads or whole strategies we calculate the price we want and wait for the order to be executed. Maybe one can do this intra day with DAX but it seems highly unlikely. So for this trader, options win on every front, placing little demand on our time or our focus from one minute to the next. Lazy is GOOD! Here’s a crumb of comfort:
In The Inbox
From iVolatility.com for those who hold equities: iVol This links to a neat explanation of a put spread collar though here we focus on the index it could be applied in the same way. An underlying is an underlying.
For those who like the rabbit hole of extreme finance! A deeper dive from Goldman Sachs :Goldmans
Distraction Trades
ADA was $0.7447 now $0.7073
XRP was $2.4210 now $2.3890
DAX : A wake up: 2 wins two huge misses a loser and a break even +300
UK Gilts were £16.02 now £15.89 This is based on the Vanguard ETF, but maybe this is the ‘sunk cost fallacy’ of having gilts as a back stop which may never happen.
Legacy Trades to 407 (5 wins 1 loser)
Trade 396 Calendar/Time Spreads( Running Having Rolled )
Expiry at 8685 gave us 485, and 385×2= 285 LOSS
Dare we roll? We are here to educate by doing so here we go: Rolling to March 8200/ 8300 would give us 273.5, so we have a rather ugly cost of 11.5.
Now –Yikes! 596 and 498.5×2= 401. This is purely for academic purpose and we would not suggest/recommend or in any way approve of such action/inaction. However to see how this pans out we will run it.
This week 497 and 401×2= 303. So it’s an improvement but horribly deep in the money, we’ll keep it going and rolling purely for punishment!
At close last Friday 444 and 346(x2)=248 355 , 261(x2)= 167 on Thursday (We’d take that all day long) We continue to roll
Expiry: 8643, gives us 443, 343×2= 243 So Last week was the best we could do, we will not carry on rolling this though of course we could get 287.5 for the April -so in 6 months we could collect sufficient premiums to close out with no loss. LOSER CLOSE OUT
Trade 401
We went with the esteemed Professor’s straddle, and February worked well, remember .Now we have:
Previous week : March: 8700 call 71, 8700 put 124.5 Our initial credit was 239 thus we have 239-(71+124.5), gives us 44.5 WIN
Last Week: 8700 call 142 8700 put 51.5 =193.5 (initial; credit 239) 45.5 still winning
This week 8700 call 74 and 8700 put 86.5 =160.5 (Winning as initial credit was 239) WIN 78.5
Now we have 31.5 and 91.5 =123 WIN OK It’s been a nice run but we’d definitely take this 239-123= 116
Expiry 8643 So the short call is worth 0, the short put 57 a monster WIN (239-57)= 182
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.
Calls: 8850 25, 8900 17 = 8, Puts 8550 62 8500 49= 13. Rather uninspiring, but ok.
Was : calls 57, 39.5= 17.5 puts 23,18=5 Gives us 22.5 (initial credit 24)
Was calls 19.5, 11 = 8.5, puts 39,31= 8. 16.5 against credit 24 Boring and a bit ugly
Now: calls 4.5 and 2 = 2.5 puts 28.5, 19.5= 9 WIN It’s made 24-11.5=12.5 which is 50% of max possible profit -we’d close out but run for fun
WIN! So both sides went out for zero Our risk was at either >8850 or <8550 Max profit 24
Trade 403 How to be Bulletproof For Next to Nothing(March Expiry)
Futures point to a very likely drop on Monday but we have Friday’s prices as always. So, swings and roundabouts, we place the trade which is a ladder/condor/Xmas tree. It’s a combination of 2 ratio spreads as follows: Long 8600 put 78.5, short x2 8450 put 39.5, long 8300 put 22, short x2 8000 put 9.5. Here’s the arithmetic: 78.5+ 22, minus (39.5+9.5 x2)= 2.5.
So for a cost of 2.5 we get nice downside exposure at 8600 and risk is very far away at 8000. These kind of trades have a very wide profit range no upside risk but possibly only a moderate chance of profit.
Those prices were 29.5, 14.5×2 and 9, 5×2. This gives us overall minus 0.5 Early doors
Was 50.5,- (24.5×2), 14.5 -(10.5×2) = Minus 5
Now: 42.5, 14×2, 6.5 and 2×2 gives us 17 WIN We’d take that although on Thursday it was 28 which we’d have taken even more happily.
At expiry this was worth 0 and when you are in credit you really are best avoiding PIN risk as suggested we’d have closed out last week.
Trade 404 Long Shorts
Fuelling the bear position, remember? https://worldperatio.com/area/united-kingdom/
What if we decide to get short with a short call and a long put spread? 8900 call 39.5 long the 8800 put and short the 8700 put 89.5, 51.5 =38. We have 1.5 Credit and a massive dose of ‘Hopium’. I doubt this is a good trade given the epic run of the Western stock markets, but let’s view it as a bit of downside protection, with maximum reward 101.5.
Now 8900 call 11, 8800 put 144.5, 8700 put 86.5 Gives us 58-11= 47.(1.5credit at open) WIN Almost 50% of max reward, we’d close out. Run…for fun
At close on Friday 75.5. Thursday’s close: 88 Exits are 90% of the process but we’re always happy to take what is ‘reasonable’.
At expiry 8643 gives us MAX profit 101.5 WIN
Trade 405 Time to Get a Calendar Trade
We are selling the March 8650 put for 66, and buying the April 8800 put 196 and selling the 8650, 123. Thus we have a long spread in April with max reward 150. This is a small debit trade, we pay 73-66= 7.
Was: Mar 8650 put 63 April 8800 put 218, 8650 put 132.5 Gives us 85.5- 63= 22.5 A profit. Expiry may see the 8650 put go to nothing, so we run it. Of course it could get crazy, that’s all part of the game.
At expiry 8643 7, the April spread 190.5-106.5= 84, gives us 84 -7(minus our cost 7)= 70 WIN
Trade 406 Straddle Versus Strangle(April expiries)
Here’s a bit of fun and each week we’ll update what’s winning and what isn’t. So….. the 8650 straddle: call 119.5 and put 132.5 =252. Strangle: 8900 call 30.5 8200 put 29. To keep premiums level we sell 4 strangles against 1 straddle, which then gives us 252 against 238
Remember we use: https://www.cmegroup.com/tools-information/quikstrike/options-calculator.html
What’s YOUR prediction?
Strangle: 8900 call 21, 8200 put 19.( credit 59.5 -40= 19.5) The straddle 110.5 and 106.5 (credit 252- 217= 35)
However: We sold 4 strangles, so that gives us 19×4= 76, trouncing the straddle
Trade 407 Building On A Legacy
With trade 405 we inherited a juicy long put spread 8800/8650 so let’s have fun morphing this into something more interesting than banking a plain vanilla 70. We get spicy and sell another 8650 put for 106.5. ( Much more interesting than 70!) Let’s add some downside protection too. We have risk at 8500, so let’s buy that put for 57 and sell 2×8350 puts (31.5×2) a credit 6
We now have risk at 8350 and a war chest of 106.5+6= 112.5 should we need to adjust
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.
