That Was The Week
Tariffs what tariffs? FTSE is up YTD over 4% reminding us once again that the economy is not the stock market. The dramatic rise on Friday was curious given the run of 15 consecutive UP days. This may be a record and certainly raises eyebrows here at Options Investing. And not a little nausea! This may not be a great time to be trading/investing in anything other than fixed interest or money market funds. Warren Buffett is known as the ‘Sage of Omaha’ for a good reason and he is not optimistic. However we need to trade what we see, put the bias in its box, and make options prices our guide. The derivatives market is the smart money
Local elections and one Parliamentary win for Reform has shaken things up. While it’s easy to point fault at the and previous governments, there seems to be no idea about how best to manage our economy and our society. Every generation thinks the country is going ‘to the dogs’ but we do seem to lack inspirational people. When was the last time anyone said ‘Oh, that’s a great idea’ about a government decision? Maybe AI will solve this for us with universal governance designed to optimise a fair society, because human intelligence seems to underperform. Knitting…….. sticking to it, now.
Statistic of The Week
We now have since start of the year 50 up days and only 33 down days -that’s a big imbalance to bear in mind. In any given year the difference is ± 10-15 days to the upside
In the Inbox
I know some of you trade the US and this popped into the box: https://go.cboe.com/l/77532/2025-04-29/fmhy4k/77532/1746218844qaZk2j62/Vol_Insights_0DTE_Volume_Q1_2025___FINAL_V3_2.pdf
I don’t personally like 0DTEs but that’s just me, it’s a bit like PIN risk with monthly expiries, some people thrive in expiry week. Yours truly always gets nervous of losing profits. The US market for options is incredible but as the saying goes ‘ become an expert in one thing ‘. Unless you have a share portfolio precisely because you like options around them to enhance yield. Personally I like silver and I do own some via a physical ETF. I understand that IG Index allow you to spread bet silver options. My own personal basis for buying silver is the gold/silver ratio as here: https://www.gold.co.uk/price-ratio/gold/silver/alltime/
A lot of love for silver when the ratio hits 100. allegedly. Of course gold may plummet and bring the ratio back to norms ( 60-70). With gold at over $3,200 an oz and silver 100th of that, if and when it’s only a seventieth it’ll be worth…… more. Some quote price targets as high as $60. DYOR as always.
Distraction Trades
ADA was $0.7096 now $0.6967
XRP was $2.1943now $2.1896 Cardano not so loved either.
DAX : 4 trades no losers +540. The entry signal remains the same, the stop is 40 . Managing the exits….. that’s the key.
UK Gilts Were £16.13 now £16.12 This is based on the Vanguard ETF, not sure how the prospect of lower interest rates might affect them.
Legacy Trades 411, 412 and Newbie 413 (410 too but we closed it)
Trade410 Calendar Ratio Put Spread. A CalP.Rat (Catchy enough?)
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.
Was 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 )
Now: 8000 call is 590, the puts 6 (x3) gives us 608. THIS IS WHY WE CLOSED IT!
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.
Well that got blown up quickly 25,15.5= 9.5 for puts, 2019.5, 128 for calls= 91.5 +9.5= 101. 83.5-101= minus =17.5 LOSER We run it to expiry, however knowing it can only go to 100 against us.
Trade413 Downside Protection
So, the most obvious way to protect your portfolio is to buy puts, but even now they are expensive. Another way is to use ITM(in the money ) call butterflies. Zero risk to the upside and good profit potential and risk/reward. OK, so while not wanting to predict anything, we centre on the 8400 level* on FTSE. Here’s a call butterfly with strikes at 8500/8400/8300 and those prices: 128,209.5(x2) and 300. Remember we buy the ‘wings’ the outer options, and we sell the body x2. Thus 419- 428, gives us a debit of 9. At expiry we’d love the index at 400, as we’d make 1,100%. On that journey to expiry we won’t see much action but if we could make x3 our money, we’d be happy.
Caveat: Trading conservatively is a personal choice based on the possible market turmoil or potentially even worse. We can stand to lose this sort of premium every month but that is not the plan, staying solvent is the plan.
*| No prediction, just seemed to be the middle groundnut who knows?
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
