That Was The Week ‘South Park’ Became America’s Morality Mirror
Dictatorship is alive and well as America’s scientists, academics, justices, truth tellers, migrant workers and many more are put to the sword. Gerrymandering is rife again with the Republicans pulling stunts left right and centre. Ok there is no left or centre. Americans may be embattled but the numbers resisting seem to be dwindling. We’ve seen this before, but only in black and white films. Our own cuddly UK seems in utter turmoil and Trump’s brutal head on assault on migrants gets a bit of love this side of the pond. How does this affect options trading? Well, it’s just getting harder to figure out where the volatility is going to help us out. We’ve long had an excellent track record with a very high win rate and reward/risk ratio of impressive proportions. Right now, we are in a bit of a quandary.
Honesty is paramount and we always aim to be 100% accurate with prices and results. In our honest view doing nothing is preferable to placing trades in the current void. Recent confusion about call volatility has actually been addressed here: https://www.cboe.com/insights/posts/the-vix-index-decomposition-a-heuristic-framework-to-unravel-unexpected-behaviors-in-the-vix-index/#anchorName
Hand on heart I have never seen or heard of ‘parallel shift of skew’ for example but sticky strikes, yes. http://deltaquants.com/volatility-sticky-strike-vs-sticky-delta
Don’t worry, this stuff is above my pay grade too! My beef with all of this is ‘ Where IS the actual volatility? ‘ And this is the issue whereby we are limited in finding trades when the risk remains extremely high, but prices do not reflect that. You could ask is risk elevated? As complacency seems to rule the markets. There seems to be no shortage of buyers at any price.
In the Inbox
Another invitation from Price Headley’s Big Trend https://members.bigtrends.com/live-event-replay-how-vertical-debit-spreads-can-reduce-trading-costs-while-still-targeting-big-winners/?inf_contact_key=affa6b02fa8cb7b4ec21fd1567b0b50f595bc1afdf8fc89706dc8022d918b6bd
This actually raised more than one eyebrow as there is an argument against spreads, in that if they are cheap enough, just buy outright, and don’t cap profits.
Of course it’s simplistic to buy outright when there are many factors to consider, and volatility can vary a lot during the course of trading day. Even more so after weekends, on occasion. However if you have a plan, good luck to you. Trading the index means fewer surprises from the financial world.
Distraction Trades
ADA was $0.7168 now $0.8098
XRP was $2.9559 now $3.3237 Renewed hope for our chosen Cryptos yet again.
DAX : 2 days no trade 3 losers Nett loss 120 This is a shocker as there were some huge moves that we completely missed. Expect losses but be diligent, is the lesson here.
UK Gilts Were £16.00 now £15.93 This is based on the Vanguard ETF, not a lot of love, though of course price goes down, yield goes up. Hard to know if Gilts are worth having. But interest rates may have to drop once inflation is out of the system and job losses mount. Gilts should then rise.
Legacy Trade 424 (was 415b)
Trade 424 High Risk Big Reward
We will roll Trade 415/415b 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?
Was 8450 call 652 8650 calls 456.5 x2 Gives us: 913-653= minus 260 We are running this, remember but it’s not pretty right now!
Was August 8450 call 600 8650 call 405.5 =minus 211. Still underwater with both trades but remember we are rolling, as and when it’s optimal.
This week: 8450 call 618 8650 call 419.5 = 221 Worse, and maybe more misery to come, but….. we can roll, and that is what we’re doing, remember
Trade 425 Can We Keep Seeing High Prices?
So my Spidey sense are not working. But we need to have something that might reward us in the unlikely event the market might be allowed to drop! Let’s give a spicy 3×1 another chance. We use August options, and sell 3 puts for every 1 that we buy. Here the 9000 put is 48, the 8750 put is 15. Gives us 48- 15(x3) = debit 3. Risk, then at 8640 ish.
We own a .30 delta and have sold 3x.10 deltas. Gamma? 14, and 6(x3) Volatility is appalling!
This week: 9000 put 61, 8750 put 19.5×3 gives us 2.5 Interesting now volatility has picked up. In fact Volatility picked up at the close on Thursday puts by almost 10% increase in premiums:
Prices on the left are the closing prices for Thursday, Wednesday’s close is the next but one column.Calls on the left, strikes in the centre ALWAYS. Example: 8800 put went from 44 to 48 but call prices gained too.
This week 9000 put 20.5, 8750 put 3.5(x3) Well, we’re in profit our cost was 3 and we have a credit now of 10 (300% win– we could brag, but unless we’d traded 200 contracts it’s not worth much, at £70 for a 1×3
Trade 426, the good old Cal rat
Another rinse and repeat, here we go again with the calendar ratio. We sell 2 puts and buy one. We sell Aug 8750 put 19.5, and Sept 8750 put, 60 and we buy the Sept 8850 put, 78. So the maths geeks will notice we pay 18 for the long Sept spread, and receive 19.5 for the short August put. We are getting 1.5 for our troubles. Ordinarily I would not wish to have put risk as the week following some disturbing events may require restraint- sitting on the sidelines. However we pledge to show a new trade each week. We do, of course, have a fair chunk of wiggle room here. Somehow 8650 is a key level to my mind.
This week: Aug 8750 put 3.5 Sept 8750 put 35.5, 8850 put 48 Winning well we run it, but to close would give us 1.5 initial credit plus 12.5= 14.
A good quick return but we want the big bucks…..and there is more to this than meets the eye
Trade 427 Gun to Head Time Again!
Here’s a bit of a quirk, it’s a slightly bonkers Big Lizard( Short straddle with a long call ) Although the strikes don’t quite add up.
We sell a 9050 call, 52 buy a 9100 call 26.5 and sell a 9025 put 26.5 . Gives us 25.5+26.5= 52 credit No upside risk, downside at 8975
So keen eyed observers will note the straddle (long or short) would be always use same strike call and put and we have 9050 call and 9025 put ( Shoot me!)
Just look at that stupid low volatility- one week to go, BIG Gamma. It’ll be fun, honestly!
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.