That Was The Week More Dizzy Heights Attained In the Face of Gloom
So another ATH -All Time High for FTSE100 as valuation(price to earnings ratio) is again stretched to a dizzying 19, compared to a norm of around 14. Perhaps it’s unhelpful to cast a pall on a market that defies the zeitgeist. We Brits do seem to delight in doing ourselves down. We cite the 70s when we were all poor but life was ‘good’. The car industry was a disaster, and while JLR currently endures some pain from hackers, it seems to produce cars that are much in demand. They account for 33% of the UK car industry, let’s hope they can get back on track. Meanwhile America is shut down. I didn’t know that people in vital services have to work for nothing. Hardly a benign democracy, but then that boat has sailed and possibly run onto the rocks. Twice.
Global events notwithstanding, it’s getting so much harder to make options work when it seems everyone and his horse is buying calls. Again the comparison with investing is that buying and holding can work well, but there is no flexibility. The pain of buying a stock and watching it plummet is a lesson we don’t like to repeat. I don’t seem to learn! Gold and Sliver are enjoying more love and my own tiny fun purchase of a China ETF has yielded 34%. And, no I’m pretty sure that is not optionable.
Cryptic?
There seemed to have been a feeding frenzy with Bitcoin, but as we only have a couple of tiny Crypto’s we are not concerned with that particular monster. I believe I confessed to not having a clue as to how to buy it when it was $11 and a £500 punt would have been the dream ticket. Back then it seemed so ‘Wild West’ to yours truly. Happy not to be a multimillionaire worrying that my wealth might, like so many, just disappear one day.
APOLOGIES FOR THE TYPO TRADE 434
I’m sure you realised I’d typed 8300 instead of the intended 9300, and the options prices would have made that patently obvious. Apologies.
In The Inbox
So another multi event week from CBOE so I thought it best to provide the link to all their resources. Fun for all the family! https://www.cboe.com/insights/webinars/?utm_source=mcae&utm_medium=email&utm_campaign=traders_edge&utm_content=email_type-newsletter-webinars_and_replays
We also have dear Larry’s ongoing education. https://mailchi.mp/optionstrategist/the-option-strategist-weekly-updater-4862550?e=5f15d5ff5d
And some polite but relevant commentary from CME https://view.the.cmegroup.com/?qs=96fa7c4c62f588b51a9a5d2520a23b656916e65014bcbbb062b5892e8ea26989cdf58ef640e7a07eebad4c57912993cbc08e0fb4f9cd32e8a5a601904152f4da8a35eac465c26d576bdf1413c5eb3bdc
Distraction Trades
ADA was $0.7843 now $0.8424 ( a high of $1 recently)
XRP was $2.7801 now $2.9859 So, our chosen Cryptos hitch a ride on the back of BTC.
DAX : 5 trades 1 loser Nett: 590
UK Gilts Were £15.72 now £15.79 This is based on the Vanguard ETF, more wobbling around. This has traded as high as £27 still not looking interesting, it seems.
Legacy Trades -Mixed/Losses plus new trade 434
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?
ROLL: SEPTEMBER TO OCTOBER Cost to close Sept:387, Credit to open 418. Nett Credit: 31
As new trade we owe 418, and took in 223, and now plus 31 =254 as legacy, we took in 104.5 +31 =135.5
We continue this and it breaks the cardinal rules of cutting losses, options can be forgiving. Margin is of course a consideration.
Last week: 849.5, 652(x2)= 454.5 so still underwater and we await a big drop or the next roll and credit.
About that BIG DROP.……..Ouch, and thrice, ouch. 1050, and 851.5 x2= 653 LOSS
Trade 432 October Calls -pun intended! It’s a Put Position
Big and cheap is how we roll: big rewards, low cost, moderate risk. Here’s what we have: 2 ways to look at this: 2 put ratio spreads or a put butterfly paid in part by deep (7%) OTM puts.
Here’s the numbers, and strikes: buy 9400 put 149, sell 9200 put 64.5 x2, buy 9000 put 31, sell 8650 put 13.5 x2 So we pay 20+ 4= 24 And cross fingers! It’s horrible in this absurd market, but we have no upside risk. Logic of the trade, max reward 200 possibility of loss moderate.
Now: 9400 put 186, 9200 put 74, 9000 put 29.5, 8650 put 11 Crunching those numbers: 186+ 28.5 – ( 74×2 + 11×2) = 214.5- 170= 44.5 WIN!
While this has made nearly 100% in one scenario we’d close out, but here we will run it for the big bucks. THIS is how great options can be.
Now 135.5, 44×2, 16.5, 6.5×2= 51 WIN! We are running this but we paid 24, so it may have a lot more in the tank
Seems that was the best we could do. Now 28, – 8×2, 5,- 2.5×2 = 12 We’d have been happy with the previous week’s win of 51 but who knows?
Trade 433 A Clever Trick- Don’t Try This With Stocks (You can’t)
So 429 had this outcome(we now have a long 9250/9150 put spread) : 94.5-58 =36.5 + opening credit 5.5= 42 WIN! CLOSED
What if we sell the Oct 9250 put for 94.5? What if we buy the November 9250/9150 put spread to protect our short Oct 9150 put? That costs 147.5-108.5= 39. We trouser 94.5-39= 55.5
Our position once again, we have a calendar ratio spread- 2 short puts one long put at the higher strike 9250.
Oct 9150 put 33.5 Nov 9250 put 112, 9150 put 82 negative 3.5 now this has already given us 55.5, remember
Now Oct 9150 put is 7, Nov 9250 put 55.5 and 9150 put 40.5 gives us 8 That’s ok as our November spread has some mileage yet.
Trade434 Calendar Crazy Again?
An old chestnut, the ratio calendar straddle. We sell one November 8300(9300) straddle and buy 2xOct 8300 (9300) straddles. Why? It profits from a big move down and it’ s not a high risk trade, though theta (time decay) is brutal. Those prices 154 for Oct,(x2) 281.5 for November. so 308-281.5= 26.5 cost
Volatility and gamma will work well in the event of a drop, which as always seem unlikely, so we may look at closing this out early and taking a loss. Or it might make ££££, given that we own 2 spicy straddles against the one less active November position. We just need a crazy person to do something that the markets cannot accept.
APOLOGIES- SHOULD BE 9300 STRADDLES!
So, where are we now? BOOM! Somebody went nuts with the Barclaycard! Our 9300 Oct straddles: 213+13 x2= 452, our Nov straddle 269+64 = 333.
Gives us a juicy 119 And we close out. We are DONE! WIN!
Trade 435 At These Lofty Heights, Should We Get All Protective?
Put options are cheap as chips right now so let’s buy something that might give us a bit of comfort and possible reward.
A cheap and cheesy Put butterfly -October prices 9500 put 60 9400 put 28 9300 put 13. I’m sure you are familiar with the butterfly, sell the body x2, buy the wings. So our wings cost 60+13, and our body sells for 28×2= 56 So it costs us a total of 17 and could make 100. I have little faith this market could ever make a sustained drop, but it’s low cost with no additional risk, and reward is good. We will probably run this to expiry.
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.