That Was The Week Expiry was Almost Rational
Ok, well expiry was 8 points short:
Sporting the now customary bonkers candle 8855-9110 as in the link : https://finance.yahoo.com/chart/UKXSP.L
While even the Labour government is urging people to ‘invest’ in the stock market, to this trader it looks like desperation. with p/e 17.78.
While p/e does not always correlate with market performance, the last dip in 2009 was clearly a great time to be an investor. But, this time it’s different. We are awash with cash of varying degrees of legality. We have company share buybacks that were a gift when money was almost free with low interest rates. There is no way to play that game, for us retail traders although it makes financial sense to borrow (bet the farm +25% )when money is cheap and ride the euphoria wave. Fundamentals are not awful if you believe the numbers, which seem to flout logic on the macro level. As I write, Radio 4’s Money box is on and Paul Lewis is devastating the pro investment FCA spokesperson. This is why we TRADE!
Expiry Week and Ugly Positions
On the theme of rolling bad trades, please check the latest, and while it may not be ideal it is a valid part of options trading. We have had an excellent run of winning trades and put ourselves out there with trades that looked a forlorn hope. The message is obvious: we don’t know the future but we can try to find trades that have an edge. Any thoughts, comments or indeed criticisms always welcome. We are flawed and while the strategies work, we show real warts and all trades- for educational purposes only. And losses should always be part of the education, that’s the reality. We need to get comfortable with being uncomfortable
In the Inbox
We posted the invitation to Volatility and Implied Probability Distributions and it was an interesting session. No surprises, the S&P does not behave according to standards returns in fact it out performs 
And this was a little curio that may (or may not) be useful. 
An invitation to Youtube: https://youtu.be/m_t6_v0EywY?si=85rSzJB9-mxEuKxz 7th Standard Options Expiration Open Forum – Q&A Session Replay. Open to the Public!
We never stop learning, although it’s easier than changing one’s point of view!
Distraction Trades
ADA was $0.7228 now $0.8237 more love for this minnow
XRP was $2.8041 now $3.4105 A whole lotta love for our chosen Cryptos yet again.
DAX : 1 WIN 1 loser nett +20 Horrible week missing some huge moves.
UK Gilts Were £15.92 now £15.80 This is based on the Vanguard ETF, not a lot of love, though of course price goes down, yield goes up.
Legacy Trades 420,421, 415a and newbie 422
415 How It Went Wrong And What To Do: It Becomes 415a
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
At expiry, the 8650 call went out for 180.We took in a credit 25. So a loss of 155. However:
We’re proud owners of the 8500/8650 call spread(worth 126 ) and we can get our 155 back. We sell the July 8700 call for 174.5, giving us 19.5 credit. So now we have risk at 8850 and no downside concerns, so here we have:
Trade 415a &415b
Last week: A small loss 8500 call 333, 8650 call 198, 8700 call 157 gives us a shortfall 22, minus our credit 19.5
Was: 8500 call 354, 8650 call 215.5 8700 call 172 gives us 138.5-172= minus 33.5
Now: 8500 call now 439.5 8650 call 291.5 8700 call 243 gives us: minus 95
LOSER! We have the following: 8700 call expired at 8992 =292. Our long spread gave us 8650-8500= 150. Therefore a loss of 142
CLOSED -415b will become 424
On Jun 21, I posted this: 415b The other possibility for repair of Trade 215 is as follows:
We have a loss of 155 and a July long 8500/8650 call spread. We SELL the 8500 call for 338.5 and buy the August 8450/8650 call spread for 157.
We now have credit 181.5 so our loss is now a small credit 24.5 and a good looking call ratio calendar spread with risk at 8850.
Previous week: the short July 8650 call 198, the long Aug 8450/8650 call spread 381.5, 217.5 =164 still underwater but it runs.
Last week: 8650 call 215.5, 8450/8650 call spread 408-240= 168 gives us minus 47.5
Was : 8650 call 291.5, Aug 8450/8650 spread 491-310 =181, gives us minus 100.5
8650 call = 342, the Aug 8450/8650 call spread 531.5, 342 = 189.5.
What’s to do? We could have rolled the 8650 call from July to August for a credit of 10 on Thursday, this will give us a deep ITM call ratio spread with a historic credit of 24.5+10.
Trade 420
June punished us for poor trade selection, but sometimes the strangle is the ‘go to’ trade. So, what can we do for July? We have 27 days to expiry. Here’s a double put ratio spread.
8800 put 110 8600 puts 55 8650 puts 64.5, 8450 puts 35.5. We buy 1 8800 put and sell 2 8600s. We also buy the 8650 put and sell 2 of the 8450 puts credit 6.5
This makes a profit down to 8300 and to the upside has zero risk. Anything lower than 8800 and above 8300 is our target, and we can adjust along the way.
8800 put 69, 8600 put 24, 8650 put 30.5 8450 put 13.5 gives us 69-(24×2)= 21, 30.5-(13.5×2)= 3.5, a total of 24.5 credit. We took in a credit 6.5, winning!
8800 put 55.5, 8600 put 20.5(x2), 8650 put 25.5, 8450 put 12.5(x2) 14.5+ 0.5= 15 + credit 6.5 = 21.5 Not so good
8800 put 13 8600 put 5, 8650 put 5.5 8450 put 3.5 = +1.5 ( Thank goodness this was a tiny credit trade)
WIN -well we keep our 6.5 credit
Trade 421 taking a simple principle
So, something has been troubling me and this is the overpricing of calls. While the term’ overpricing’ can be subjective it’s also sometimes fleeting. This came about from these guys talking about deep in the money covered calls. https://youtu.be/oxNvLwZ0dGo?si=vU24WddYTQ3IMmiz We are pure options traders, however and don’t own futures or stock. So, in this market that may take a dip we sell an ITM (in-the-money) calendar spread.
A quick glance at theta- all good, Deltas -ok, Gamma- near enough, volatility, in our favour. Our cost is 19.5 and at expiry we’d expect the August call, minus the July call value, to be worth more than the 19.5 we paid. There is a lot of leeway more than a simple buy and hope. We may be able to morph this too. And YES, there is risk but it’s not likely to be a game changer.
NB Underlying= FTSE future at the cash close at 16.35 on Friday.
Was: August 240, July 215.5 =24.5 a small credit
Was; August 310, July 291.5= 18.5 credit (now a loss for 1)
Now closed out for credit 10 on Thursday( we only run to expiry on paper) LOSER
A salutary lesson that the simple application of time decay is not the obvious edge you’d expect
Trade 422 A Big Beautiful Bearish Butterfly
So in these dark and trouble times we don’t want a lot of downside risk so we go with the safest trade- a butterfly. This one has massive reward/ risk if it comes off. Our strikes are July 8800 long put, 115.5, 8500 short puts(2) 45 = 90 8200 long put 22.5. Cost 48 Now we would not normally say such a hefty price but we don’t have to run this to expiry and it could do rather well. At 8500 we make 300 of course but we’ll try to catch out a few £££ and would be happy to make 40% .
You have to laugh! Now 8800 put 13, 8500 put 3.5 8200 put 2. Big loser!
LOSER! This was a poor choice and as stated we would not normally pay such a hefty price, another lesson. We are not perfect.
Trade 423, Calling a Top? That’s for Idiots
OK, it’s hot and the July and August options chains look like a desert.We are going to do a contrarian Jade Lizard which would normally sell the call spread and the put, but here we sell the call spread to buy the put. Here’s the prices 8900 call 67 8950 call 37.5 8900 put 31 Give us a tiny cost 67 -(37.5+31) = -1.5
This is of course heavily directional downwards, and probably a forlorn hope, but then if we rested on our laurels of great runs of winning trades, it would not be honest. Sometimes it’s better to sit on your hands, but we promise a real trade each week. We also look to preserve capital.
Yes, a forlorn hope this market never goes down, that is clear. A loss of 48.5 (IDIOT!)
LOSER!
Trade 424 High Risk Big Reward
We will roll Trade 215/215b but also instigate a new trade which is long August 8450call short 2 x 8650 call. Those prices: 531 and 342, so as a new trade there’s a CREDIT of 684-531= 153. As a legacy trade there is a small credit 34.5. This as you can see, is deep in the money with risk at 8850 This may be a struggle but what if we can roll, for a credit ad infinitum?
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
All opinions expressed here are not to be taken too seriously and all of the trades are for educational purposes only.