That Was The Week Stupidity Reigned Supreme
Well, it’s not as if it was news. We knew the tariffs were coming, we know they are economic suicide, but is the reaction overdone? I have banged on about the FTSE being expensive and was positioned to accommodate such a view, but not the crazy. Traders on Friday seemed to be of one voice: PANIC! We speculate that AI/algo’s may be culpable. Wall Street traders generally wade in with huge optimism. We did not expect Friday’s carnage. Pensions take a huge hit. Share owners get a battering. Options traders doubtless have taken a massive hit. Our trades here have also taken a pounding. So, what’s to do? We do not try to trade in a panic. We know prices are just too crazy, but all power to those who traded through the mayhem
FTSE P/E is now <12 apparently, making it sensibly priced. On a personal note I take no pleasure from the evisceration of naked put sellers, but hope more sensible attitudes will prevail. The nauseating BTFD( buy the f***ing dip) has long been a feature of the retail market, and it works until it doesn’t. Traders lose their shorts when the party games stop. Putting things into perspective, trading is a hard business and any participant should be treated with some respect. We need liquidity. We also need some level heads and wiser voices.
In the Inbox
My emails are graced weekly with this missive, which is well received https://www.cmegroup.com/newsletters/infocus/2025/04/a-volatile-week-in-review.html#key-takeaways
Thanks to CME for some simple data and brief analysis. It was surprising to see gold and silver prices drop however.(Also corn and coffee).
Students of the science of options may enjoy this in a series from CBOE https://cboe.zoom.us/webinar/register/WN_f2f12zojQc2a-LN7jdU8MQ#/registration
I find the content of these pretty good. The presenters are open to questioning too. I urge anyone wanting to trade options to get the education. We enjoy the journey as well as the (hopefully) profits. As informed traders we hope to manage our risk better. We are fortunate to be able do this stuff.
Distraction Trades
ADA was $0.6843 now $0.6620
XRP was $2.1909 now $2.1449
DAX : 2 trades and a missed entry which was unusual (1,000 points) so the clear trades gave a profit 450, with 2 days of no entries
UK Gilts £15.91 now £16.28 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. So having lost 2% in a year, closed out my Gilts last week !
Legay trades 406 onwards and Trade 409
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
This week: 8900 call, 12 8200 put, 10 Profit: 59.5-22= 37.5×4 =150 8650 straddle 95+83.5 Profit: 252- 178.5= 73.5
It’s not even April and the strangle has done brilliantly. We’d take that and close out, but the straddle struggles to keep up. Given the multiple strangles this is no surprise.
BOOM!
My argument- we’d have closed out the strangles but left the straddle, would give us Negative 610( Credit to open 252) Loss of 358 We are not done yet, this can be rolled into consecutive months) Had we kept the strangles the loss would have been 241.5×4 =966. however, we can cherry pick exits here and the strangles being a multiple of 4 would have given us a lot of pain, but again these can be rolled.
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
The 8800/8650 spread is now 169.5, 83.5= 86. The long 8500 put is 38.5, and the short 8350 puts are 18.5×2, gives us a credit of 1.5 -Is it all going too well?
So let’s adjust this? Not a great idea. 8800 put, 744.5, 8650 put 600(x2). 8500put, 463 8350put 340(x2) Gives us 1207.5 minus 1880= 672.5 Negative
OK this could wipe out few month profits but we’ll stick with it for now, as trying to adjust this in the real world would not give us sensible prices.
Trade408
KISS….. Keep It Simple, Stupid! I need no reminders of my own stupidity (who manages to tip cornflakes into their empty coffee mug?) We are getting concerned about the market taking a dive but don’t want too much upside risk. As always we don’t want to pay for a trade. We go with a risk reversal selling the call and buying a put. Sell 8800 call 31.5 and buy 8450 put f0r 30. Credit 1.5
BIG BADA BOOM! So, having suggested this be closed out for 35 on Monday for a quick turnaround, the smart money would have given us 415.5
Trade 409 Sell The Spike
Volatility, whilst elevated, favours the seller. VIX (or any volatility index) is mean reverting. so the only game in town is selling premium. How safe is this? Another strangle, here comprising 7500 puts, 41.5, and 8400 calls, 38.5. We keep an eagle eye on this, but taking in 80 for a strangle with the following spicy vol and sensible deltas…
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.
