That Was The Week US Job Numbers were awful
So, we’re of course back to bad news(only 22,000 jobs) is good news as the chatter about Fed cutting rates by 0.5% dominates. No doubt the air in the White House was blue and people will be looking round to see who’s getting sacked. Every week I have to shrug off the disbelief at America’s self inflicted mayhem. People voted for a cult and that could happen in the UK. However expecting people with no talent, relative intelligence or experience to govern something as complex as a nation may not be wise. Being a disruptor is easy when you don’t have any responsibility. Has the world ever been at such a precipice? Probably.
Gold and silver got some love and the FTSE shrugged off the negatives and clings on to 9200. It’s not that the economy is awful, it’s been awful for many years. How is it affecting our options trading? We’re still in that eerie unworldly low volatility environment. However if you are selling something that’s cheap you need to be buying something that’s also cheap. We remain en garde and half expect volatility to explode after the ongoing weekend madness across the pond.
In The Inbox
Wise words from the Manx Master Investor Jim Mellon https://youtu.be/MQgWZLugQTw?si=qU_Q9CXWsNCODKEz
IMHO, he’s a good egg and he’s passionate about investing for the commoners( us).
Seeking Alpha is a smart resource but not focussed on our little UK options world but some good stuff: https://seekingalpha.com/article/4820189-what-moved-markets-this-week?serial=48468220_272719232231&source=email_wsb
Distraction Trades
ADA was $0.8323 now $0.8216 ( a high of $1 recently)
XRP was $2.8095now $2.8023 Some gentle downward action for our chosen Cryptos.
DAX : 4 wins 1 no entry 690 nett. ( Tuesday was bonkers!)
UK Gilts Were £15.72 now £15.84 This is based on the Vanguard ETF, but the bond crisis is over …for now. This has traded as high as £27 is it now getting interesting?
Legacy Trades -Mixed/Losses plus new trade 431
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.
Roll to September: paid to close Aug position for 300, opened same position in Sept for 370. CREDIT 70. As legacy trade it’s now a credit of 104.5, as new trade it’s a credit 223.
LOSER!
However we are rolling this to show how things can get uglier/ possibly better. How and when to roll? Don’t leave it to expiry, we did this on Thursday:
August: 8450 call 718 8650 call 518 rolled to Sept: 8450 call 759, 8650 call 564.5. We pay 41 for the 8450 roll, but collect 46.5×2 for the 8650, which give us: 42
As legacy trade this has now given us 34.5+ 42= 76.5, as new trade 153+42 =195. (Bear this in mind as it will come right sometime!)
Previous position: 8450 727.5 8650 534×2 = 340.5 Losing more!
Oh dear oh dear: Now, 8450call 905, 8650calls 707.5 x2 gives us: 510 LOSS
Last week: 8450 call 772, 8650 call 575(x2) gives us: 378 Still as ugly as expected.
Now: 8450 call 774 8650 call 575.5 x2= 377 Winning! Ok it’s still horrible but our losses narrow.
However, we are running this and against the current market frenzy it will get ugly, but let’s see if this can come right. We can run, AND we can hide!
Trade 428, A Dog’s Breakfast of puts
Well as there is no downside risk whatsoever, we’ll take a bucket load of puts and sell them. We’ll buy a few too.
A quirky put ladder starts with a long 9200 put, 115, short 8950 puts x3, 41=123, long 8850 put, 29×2,=58 short 8600 put x2, 15=30. Debit 20
We have risk at 8600 but that seems as likely as the Loch Ness monster standing for Parliament (Quote me!) Max profit 250-20 =230
Here’s the risk graph: https://optioncreator.com/styasba
Was: 9200 put 39, 8950 puts 15×3 8850 puts 12×2, 8600 puts 7×2 Gives us 4, this is terrible!
Previously: 9200 put 73, 8950 puts 20.5,8850 puts 13.5, 8600 puts 7 Gives us 24.5 – well it’s in profit as we paid 20
Now 9200 put 57.5 8950 put 13.5 x3. 8850 puts 9.5 x 2, 8600 puts 5.5×2 Gives us 25 So, not a loser…
(Could have closed out as of 02 Sept: Trade 428 now 151-109= 42. but we let it run as we paid 20 and there could be up to ± 250 max profit )
Trade 429 Raging Against the Machine
Maybe we get a dip, maybe the Moon is made of cheese. We find a trade that has moderate risk, generally and so we are again going with puts in a calendar ratio spread. Calendar: We sell a Sept 9150 put, 31, sell an October 9150 put, 65.We BUY an October 9250 put, 90.5. This gives us 90.5 minus 65+31= Credit 5.5
Sept 9150 put 55 Oct 9150 put 98.5. 9250 put 137.5 Ouch! That got weird. We are losing 10.5 ( late confession, the prices did NOT meet my usual criteria as we’d expect credit 20 – 30 to open typically)
Erratum: from last week: [ We BUY an October 6250 put,90.5. ] Apologies this should of course have read 9250 NOT 6250
Sept 9150 put 41 Oct 9150 put 86.5, 9250 put 123, gives us 36.5 -41= tiny profit of 1
Trade 430 Risk Reversal
A risk reversal? Yes, we sell a call to buy a put on the basis of a dropping market. Having previously stated we try to be market neutral, this will offer some protection for trade 429 should we see a bigger slide. So, those prices: 9300 call 43.5, 9100 put 42 So this gives us a tiny credit 1.5. There’s quite a lot of put exposure although we try to keep trades distinct and separate. Clearly risk to the upside may come back to bite me. It is interesting to note the overall position in the manner of the esteemed Charles Cottle (gotta love his LinkedIn profile listing languages: Options Greek )
Message sent 02 Sept by yours truly: Trade 430 we could close out for very respectable profit here: 9300 call is 23 the 9100 put is 65, gives us a nice 42, plus our 1.5 credit.
Would YOU close out or do you think there’s more to come?
Now 9300 call 31, 9100 put 30 So, in the real world we’d have closed out. We run for fun. WIN!
Trade 431 Iron Butterfly Time?
An ‘iron’ strategy has both calls and puts so here we sell the straddle 9200 call 78.5, 9200 put 57.5, we BUY strangle 9300 call 31, 9100 put 30. We make our max profit (136-61) 75 If FTSE expires in 2 weeks at 9200. Max loss 100- 75 =25. No, this would not be my favourite position but we can mitigate losses/close out early if things get crazy. We’re here to demonstrate real trades warts and all.
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.