That Was The Week, Crazy Got Crazier
So, we have even more heightened tensions and yet limited actions. The oil price took a hike upwards, yet BP hardly moved the dial- up 20p in the week, or about 6% . Not the stuff of panic buying. So the FTSE almost had a decent down day. Vix has awoken but volatility is no way reflecting risk for our little corner of the world. So, options are cheaper than they deserve to be, but that is the sum of all opinions. This was buried in the small print: https://www.bbc.co.uk/news/articles/cg4v9nr23r7o We know the UK economy is not growing and the myth of it being the fastest in the G7 is utter nonsense. Embarrassing to see the Treasury spokesman (like Scott Bessent in the US) getting roasted for spouting nonsense. However we have media now that seems to toe the line across the globe. Independent voices are small and hard to find.
In a week that saw Poundland failing and being bought for a £1 we are shocked, and somewhat disappointed. Surely the only fun shop in the town centres. Good news for the nuclear industry while completely missing the point, that our grid is the problem. There are wind turbines that have been turned off for 70% of the time as the grid cannot cope. The problem is not the generation, it’s the storage and distribution of energy. We need reservoirs and water is great for energy storage. Pump it uphill in the good times, let it out to provide power. Thus potential energy makes sense. However, sense seems as rare as Unobtainium in politics.
In The Inbox
On the investment side: https://youtu.be/cqWVb9vaRWo?si=xyEyopZH2QRQvq5H
Jim Mellon is a class act and while his comments about US debt and the German economy make sense, we are again made aware this is a market of infinite optimism and economic reality is a distant cousin. Why worry, if the stock is going up?
For those of us who like the minutiae https://www.sjoptions.com/tour/free-options-videos/
These guys do some good stuff but much applies to bigger accounts so using second order Greeks- Vomma and Vanna for example, are of limited use. The overarching message however, is: don’t be surprised when options don’t do what you expect. The Devil’s in the detail.We can always learn something, however, and the free stuff is worth the effort.
Distraction Trades
ADA was $0.6676 now $0.6361
XRP was $2.1878 now $2.1700 . All a bit uninteresting, as Cryptos and precious metals are in the spotlight again.
DAX : After last week’s horror show: 4 wins +500 nett. However a strong signal at 15:35 on Wednesday was a peach, but we have no rules for trading at this time. It seems that overnight moves tend to continue and may be less stressful as a set-and – forget strategy using a trailing stop
UK Gilts Were £15.97 now £16.07 This is based on the Vanguard ETF, not a lot of love, but a little bump up. It’s hard to know whose government’s debt is the worst.
Legacy Trades 415- 419, Not Comfortable in This New Era
Trade 415 Is The Optimism Justified?
We don’t mind being wrong, in fact many of the trades here are based on the premise of ‘not being right’. So here we take advantage of theta with a juiced up ratio calendar spread. We sell the June 8650 call for 132, and we buy the July 8500 call for 294.5, and sell the 8650 for 187.5 call giving us risk at 8800. Thus we have 132+187.5= 319.5, minus 294.5 =25 Credit Logic of the trade -we can be right up to 8775 and below. We are selling 2 options and buying one, so a lot of time decay working for us. There is of course the strong possibility of FTSE going ‘postal’ again and hitting new highs. We will have opportunities along the way to close out.
Jun 8650 call 162 July 8500 call 335.5, July 8650 call 225.5 gives us a grand total of minus 52. Remember we took in a credit of 25. This trade needs time to mellow
This has yet to show a profit this week the June 8650 call 176.5 The July 8650 call 248, the 8500 call 368 gives us minus 56.5 (against our credit 25) 31.5 loss
Last week the jun 8650 call is 205.5 The July 8500/8650 long call spread 397.5, 270.5= 127.5, giving us a loss of 205.5-127.5= 78 Ouch!
Now: jun 8650 call 210, July 8500 412.5 8650 is 282.5 So we have the July spread worth 130, but the June call is worth 210. Minus 80
Trade 416 We Go Cheap
We want to own some puts but don’t want to pay in case we’re totally wrong, so here we buy a put spread and sell a very much further out put to help pay for it.Thus we have long 8500 put 61.5, short 8400 put 46.5 and short the 7800 put 13.5. At expiry if the index is near 8500 we will take a view and a profit. The spread costs a measly 15 so with the credit from selling the 7800 put we pay 1.5 for this, and relax. We have risk at 7700 but in this market the frenzy of buying the dip is forever at play. (The recent low was around 7500 )
8500 put 23.5, 8400 put 16.5, the 7800 put 5 gives us a credit of 2! As we paid 1.5 we are looking at a 33% profit. Take that, stock pickers!
Ugly and sad! 8500 put 9, 8400 put 6.5, 7800 put 2 Gives us a ha’penny. (NB we now have 73 up and only 43 down days this year to date)
Worth Zip!
Trade 417 Why Not Strangle the FTSE?
I do not speak metaphorically either! Given the random nature of the markets let’s go with a strangle with equal pricing. We can get premiums of 23.5 on either side by selling the 8950 call and the 8500 put. Thus we have risk at 8453 and 8997.We aim to keep the full 47. It’s not the best time given contraction in volatility but it’s hard to make a reasonable assessment of the unreasonable.( These are for June options with 20 days to expiry)
8500 put 9 and 8950 call 18 We could close this for a cost of 27 and take our 20 profit As always we run to expiry and maybe we get the full 100%
Now 14 for the call and 9 for the put=23. Run to expiry, what could go wrong?
Trade 418 More Neutrality?
It’s time again for the crazy stuff, the boredom trades and the limited potential trade. It’s a ratio calendar straddle. (Yawn…… I hear you). We will buy the near month 8850 straddle calls 55, puts 67. July 8850 straddle calls 128.5, puts 116.5. All in gives us a penny credit when we buy 2 June straddles and sell 1 July straddle. The only way this works is if there’s a decent seized move, so it’s not looking promising. However we need to acknowledge that markets do occasionally drop when actuality hits the fan. This is when Deltas and Gamma work for us, while Theta snaps at our heels
July straddle is now 243, the June straddle 110( we have 2 ) =220. Losing, in fact leaking cash, now a loss 23
Trade 419. Give me a Clue Here!
As June options expire on 20th, this is not something we normally trade, however there are ways of doing this, but not with FTSE https://youtu.be/mUweXxqBtrI?si=a4jgGT7eVTGB0mCl
So the plan for this is to sell an iron condor- short call spread and short put spread, with 7 DTE (Days to Expiry). The numbers simply don’t pan out due to the lack of volatility on FTSE, however as his strikes, he claims have never been hit using his simple formula, we can sell a strangle. The formula? We take the sum of the call and put at the money, ie a straddle, and multiply it x2. We know the 8850 straddle is 110, so we look for the strikes above and below 8850 ± 220. Gives us 8625, and 9075. Of course there’s almost nothing at 9075. So again going with a strangle we sell put at 8625= 14.5 and call at 8975 =9.5. Of course this is naked and therefore risk is considerable but there’s a fair margin of comfort with the puts.
Apologies we cannot find any inspirational winners or even juicy strategies. Why? It’s personal.
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: surreyhantstraders@gmail.com If there is anything you’d like help with, we all started somewhere and yes, it can be baffling. There are no stupid questions