That Was The Week We Had Vertigo, Panic, Anxiety.
And, it’s not over yet. We have another 4 years of this mayhem, but at least we are not in America. futures watchers may have seen this last thing on Friday night:
Diary of an Idiot
Hopefully readers here will recall a specific type of trade using both ratios, and calendar principles. A trader not too far from here had the following trade: Short March 8500put, short April8500 put, LONG 8600 put. What happened next? The March put expired worthless leaving an 8600/8500 put spread. The question, therefore was… what to do with the spread. On 3rd April it was worth 55. Easy enough, close out, be thankful the trade was entered for a credit 4, so 59 is good enough. And yet, no. This trader then decided to get cute with ‘legging out’. First selling the 7600 put with a view to buying back the 7500 put later when the market had risen. WRONG! The trader was lucky to collect 37 in the end, as the FTSE dropped.
The story doesn’t end there and thinking the tariff noise was baked in, the trader took on an 8300/8200 put ratio spread with only 2 weeks to go to expiry. A tidy credit 14, what could go wrong? Watch this space and cross fingers for expiry at 8200 next Friday!
Note to idiot: The spread is now: 84.5
Idiot Redeemed
Of course you will recall with fondness this:
What’s the worst that could happen? How about closing out for 7? On 7th April FTSE hit a low. (Coinciding with munching a premium brand donut!) At close of play yesterday the 8200 call was 31, the 8300call 16(x2) which would be a cost of 1 to close out. THIS is how having steady hands can deliver the goods when everyone else is worried about their share portfolios plummeting 25%. The lesson here is that an idiot can make money with options so long as you take the time to resolve matters. PANIC is a worse strategy than HOPIUM. You can sell both sides of the market and when one side gets hit, look at rolling into the next month before taking a loss. Your views may have been correct, your timing a little off. OPTIONS GIVE YOU OPTIONS!
In the Inbox
And a recap of the MasterInvestor show where you can cherry pick the relevant content https://youtu.be/EA5As4P88Y8?si=w0ZQEbw_tsNxddfv
Frankly there has been a lot of traffic with every expert opinion on the chaos seemingly cancelling each other out. One theme is consistent: DON’T PANIC
Distraction Trades
ADA was $0.6620 now $0.6391
XRP was $2.1449 now $2.0597 Minor Cryptos refuse to panic
DAX : 4 trades 4 wins 1000 nett Caveat: These were historic and not taken in real time.
UK Gilts Were £16.28 now £15.80 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 410
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.
This week: 2.5 and 682 for the straddle = 684.5. Strangle (0.5 and 260) x 4 =1042 Both losers
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 a 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.
Now: 8800/8650 ratio spread 830.5, 682(x2)= negative 533.5 the next ratio spread: 8500 put 534.5 8350puts 391.5 (x2)= negative 248.5 LOSS 782
Time to panic? No……..
Trade408 Risk Reversal
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
This week’s prices 1 and 486=485, a huge win had we run it
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…
Now: 8.5 for the call, 27 for the Put. Looks like we win! (80-8.5 and 27) =44.5 Again we could run this as it could make the full 100% of the premium sold
Trade410 Calendar Ratio Put Spread. A CalP.Rat (Catchy enough?)
Rinse and repeat? We go with the aforementioned calendar ratio spread which, given the 4.2 trading days remaining may do well. However we know this is a bonkers market and so caution is urged. We sell Apr 7600 put for 36.5. We sell the May 7600 put for 126. Then we buy the May 7750 put for 164. It’s a tiny debit (164- (126+36.5)=1.5
Logic of the trade: 7600 looks like a key support level (with luck) we could make a nice moderately safe small profit with the further choice of doing something with the May put spread. Such are the quirks of the Calpy Rat! Should the market melt up, we stand to make a profit, or at least not lose our 1.5
Options prices here: 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. There are no stupid questions
