That Was The Week Crazy Took a Break
Trump’s tariff toddler tantrum is looking like a damp squib, and we see a lot of angst in the US as tariffs hit farmers and construction. So, it’s hard to know what is going on in the US but a country divided is not a happy place. However the UK is now seen as an unhappy place too. (Sorry Telegraph article behind paywall). This mood shift is not going to change any time soon but the pragmatic flow of money seems unperturbed. So, we may even be seeing Dollars fleeing the US for calmer waters and there has been an outflow to emerging markets, and DAX is still basking in the sun. FTSE? Well, it’s a bit of a lame duck, and we like that. No more melt ups, please!
We saw a big rise in markets as the news on tariffs is no longer news. the old cliche that markets hate uncertainty rings true and the VIX is in a steep decline. What’s in the pipeline? Possibly rate cuts and some new trade deals so can we rule out any more market dumps? While the US saw a 20% plummet. S&P500 dropped from 6144 in February to 4982 in April while FTSE was not so bad 8871-7600, still a whopping 14%. Still not clear as to how I survived this dramatic move, yet here we are. And no, I didn’t close out the short calls I should have closed out! Options are our best friend when we manage risk and don’t panic.
In The Inbox
Whilst nothing much was in my emails, in the Gmail account I have access to Gemini. I should point out in the early days it made some blunders about options and I was able to offer corrections, which it took on board. Was that deliberate? So I wanted to test various concepts and also enquire about its options knowledge, and also to this end enquired about options calculators. Here’s what it sent: https://www.eurex.com/ex-en/trade/trading-tools/option-master
And here’s a screenshot with 2nd and 3rd order derivatives 
I hope this is clearly legible, and for options nerds there’s this ‘option’ to show all those quirky derivatives beyond our scope here. As a retail trader I don’t think the size we trade in makes any of these exotic derivatives of any value. We also tend to trade strategies so the outright advanced ‘indicators’ tend to be neutralised. Rho is always a tiny bit useful as it is the sensitivity to interest rates, and you can play with that on the good old CME box of tricks https://www.cmegroup.com/tools-information/quikstrike/options-calculator.html
Whilst the Back Scholes formula has some detractors I believe it is absolutely fine for our trading and most people use it, so the prices we get are pretty much as expected.
NB: Calculator currently not available -temporary issues.
Distraction Trades
ADA was $0.6126 now $0.7096
XRP was $2.0773 now $2.1943 Cardano get some love too.
DAX : 3 losers 1 break even 4 wins nett 410 ( wins are >100, break even is +40 )
UK Gilts Were £16.00 now £16.13 This is based on the Vanguard ETF, not sure how the prospect of lower interest rates might affect them.
Legacy Trades 410, 411 and Newbie 412
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
This week: 50.5 and 35.5= 15(minus 1.5 debit)=13.5 WIN! Caveat: there was a chance to close out earlier…… for even less. Would you keep this in your back pocket?
The 7750/7600 spread is worth 8 so no further fun with this . CLOSE for modest WIN
Trade411 The Devil’s Pitchfork
Ok we have used this once or twice before, and it looks terrifying, but it’s not. It’s the pitchfork. Simply we add up the put and call prices At The Money = 109.5,199.5= 309. Subtract this from the current ATM level =8275 although for convenience we use 8000 and at this level we have the 8000 strike call at 279, and Three times the 8000 put which is 95= 285. We sell these 4 options for credit 279+285= 564. Logic of the trade? It will benefit from a drop in volatility and might not be too awful if things get crazy again.
As you can see the deltas are -0.94 for the call and for the puts +( 0.28×3)= +0.84. So we are negative ONLY 0.1 Deltas. Remember when you SELL puts, you create POSITIVE DELTA.
Frankly the volatility is not wild so it may be too risky to the upside.
Now 8000 call 430, the 8000 puts 24×3, gives us 502 WIN! 564 credit – 502= 62 (close out- we will run for fun to expiry )
Trade412 In A Dilemma Stay Safe (Or don’t Trade)
Ok so the best way to stay safe is not to trade. However: The quote often attributed to Chrysler, and sometimes to Rear Admiral Grace Hopper, is: “A ship in harbour is safe, but that’s not what ships are built for.” Money should be put to work, in other words.
So let’s go with a cheeky iron butterfly, We buy the 8300 put, 71.5, we sell the 8400 put, 106.5, and 8400 call 113.5, and buy the 8500 call, 65. 220- 136.5 = 83.5. We take in 83.5 and our risk is at 100, ie a potential loss of 16.5, max profit 83.5.
Sorry the CME calculator is not available currently but the trade’s logic is that the 8400 level may be key support and resistance, so if we see May expiry at this level, we’ll be very happy. Although we’d take a profit of 20.
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
