That Was The Week -A Bit of Calm in the Madhouse
Rachel from accounts welcomed the news of the virtually irrelevant 0.25% cut in interest rates. Governor Bailey was tight lipped about further cuts but the US’s Powell opted not to lower rates. It’s easy to be disparaging about our BofE governor but there is a panel and so it’s group think and not everyone was on board this time, have a rummage here: https://www.forexfactory.com/calendar#detail=143352
Meanwhile we hope the Ukraine invasion and the India/Pakistan conflict can be stopped. The global picture is not good as Trump seems as useful as a chocolate teapot. Trump’s financial bailout was due to Russian money and the entanglement does not end there, as is well known. There is no cause for optimism where he is concerned. Hence my advice re trading is -well placed butterflies. In my view, it’s not a market it’s a jumble sale, with rewards going to those first to the goods.
In the Inbox
A bit of home spun wisdom :
Trading is a solitary game. We need data, informed opinion and a wider view to help with trade selection. Technical analysis captures a part of the picture. Charting is worthwhile. Fundamentals can even be useful, though of course out of date. Choosing what to weed out is key, and who are the chancers, and who are the real deal? Options traders are not chancers!
Options Institute have a Zoom meet https://cboe.zoom.us/webinar/register/WN_8IVjc9ZUQ-q241gLr5hzKQ#/registration
This was from FTSE Russell, it’s about indexing, and can be watched any time https://www.brighttalk.com/webcast/9819/640699?q=russell-us-indexes
A ‘participant’ asked about trading in an environment where the unusual has become the norm. BE DATA DEPENDENT was the answer. Are the numbers as good as the perm bull media suggests?
I enjoy some of the articles from the Chronic Investor(sorry!) https://www.investorschronicle.co.uk/search/?q=pension
Distraction Trades
ADA was $0.6967 now$0.8035
XRP was $2.1896 now$2.4170 Cardano also getting love
DAX : 1 breakeven, 2 wins and a miss on Monday for 300 points! Still 290 points to the good ( Monday’s miss was by 4 points, but them’s the breaks).
UK Gilts Were £16.12 now £16.05 This is based on the Vanguard ETF, not sure how the prospect of lower interest rates might affect them.(Negatively,it seems!)
Legacy Trades 411, 412,413 and Newbie 414
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.
8300 put 10.5 8400 put 19, the 8400 call 155, the 8500 call 77.5 Gives us negative 19-10.5= 8.5, 155-77.5 =77.5= negative 86 against our 83.5 credit A small loss
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 8400, 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 ground but who knows?
8500 call 77.5, 8400 call 155 8300 call 246 gives us 155×2,=310, minus our long calls 246+77.5= 323.5 A tiny profit
Trade 414 Crazy Risk Time?
NOT recommended unless you have a plan B*. We use May options: sell 3 x 8350 puts at 14 apiece= 42. We BUY 8500 put for 41.5. Zero cost a lot of risk, and if it goes awry, we’ll show how to deal with that too. There is a potential for catastrophic loss
* I have a plan B
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
