That Was The Week Irrational Exuberance Struck Again
So, the US stock market is now valued at 221% of GDP*. However that figure may hugely understate the position as the mega tech companies play musical chairs at $100 billion a pop. This would of course ramp up GDP as it shows economic activity, albeit nonsense. Meanwhile the saviour of the World was this week in South Korea and Japan for more fawning foreign dignitaries. The kind of sick making gestures that appeal to the unsophisticated POTUS, seemed to hit the right spot. Making promises while crossing their fingers behind their back, possibly. Oops, a tad political, however none of this on the surface bodes ill for the global status quo. What could possibly go wrong?
The epic rise of even the most tawdry index- our own FTSE has been cheered on by the retail sector who are now doing the heavy lifting. According to some sources the 0DTE options market is now 60% retail. Now that’s another ‘skill’ or gamble if you like as you cannot make a considered options trade that will only last a few hours. This kind of retail activity has a history of ending rather badly for the crowd, while the few frontrunners fill their boots. You may recall the loss making film Dumb Money https://en.wikipedia.org/wiki/Dumb_Money the premise was that the democratisation of the markets can let the little people have a go. This is the polar opposite of how we aim to trade.
*https://www.currentmarketvaluation.com/models/buffett-indicator.php
In The Inbox
Now I have had differences with Mr Dillian(I find him somewhat right wing) but he’s a very successful trader https://www.mauldineconomics.com/global-macro-update/were-back-to-1997-98
Substack has some variable content but this is heavyweight for those who like macro stuff https://aaseconomics.substack.com/p/monthly-stockbond-model-positions-f7f?utm_source=substack&publication_id=4588532&post_id=177345416&utm_medium=email&utm_content=share&utm_campaign=email-share&triggerShare=true&isFreemail=true&r=1fbdnd&triedRedirect=true
Sorry about the epic link there. Clearly they are not worried, so why should I be? It’s never all about the money cycle, there are what are known as ‘exogenous’ or outside risks. The world Doomsday clock appeals to yours truly https://thebulletin.org/doomsday-clock/ And now we are told Trump is ramping up the nuclear posturing after Putin’s boast of nuclear capable missiles. And a torpedo.Should we be worried given Trump’s fealty to Putin? Probably not. There’s only one tough guy in that pantomime.
Distraction Trades
ADA was $0.6545 now $0.6136 ( a high of $1 recently)
XRP was $2.5677 now $2.4914 So, our chosen Cryptos lose a little lustre.
DAX : 2 no entries one loser 2 wins +70 A horrible week of indecision by the Dax itself.
UK Gilts Were £16.11 now £16.17 This is based on the Vanguard ETF. Again, the ‘Safe’ haven getting some love.The yield is still 4.45% not too shabby.
Legacy Trades plus new trade 438
Trade 424 High Roller
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
Last week: 971.5, 772.5×2= 573.5 A little move in our favour ( I use the word loosely)
From credit 223, and as a legacy trade 104.5.( Previous roll gave us 31).
Rolling Oct to Nov. 8450 call 8650 at expiry 904 and 704×2= 500, Nov 8450 call 930, 736.5×2 gives us 543, so a CREDIT of 43. We continue to take in a credit
Giving us 266 or as legacy 147.5
Our rolling debit hits a catastrophic high: 1201.5 and 1004(x2) Gives us a whopping 606.5 Debit However we are NOT adjusting but for educational purposes, we keep on rolling.
Not again! This creeping barrage of buying is annoying. But, we’re demonstrating the principle. Now 8450 call 1268 8650 call 1069.5×2 gives us 871 debit
Trade 436 Who Knows What Next Week Will Bring?
So here’s the problem: The market tanked at the end of the day and ‘ looks like carrying on next week’. It’s a jumble sale and Friday’s closing prices may not mean too much.
Let’s go with a very spicy 3×1 using November prices. We buy the 9400 put for 124 and sell 3x 9000 put 38= 114. This is a bit spicy but we have a 400 point spread to protect us down to 8800
It still costs us 10 and spending money is annoying but the chances of the market rising and losing that 10 is minimal. It’d of course be no surprise if the market melts up, that has become the norm, after all.
Was 148.5 and 47.5 x3 = 142.5 = 6 Not sure where we go with this as the US as previously mentioned, could get really crazy
9400 put 31.5 9000put 10.5 (x3) Gives us…….. ZERO!
Now 26 and 9.5×3= 2,5 debit A sorry sight again.
Trade 437 Calling the Top is a Mug’s game
As volatility has bumped up a bit let’s do the higher vol trade- a Strangle: We sell the 9500 call and the 9150 put for 70 each. Gives us 140 credit. Risk at 9010 and 9640
It doesn’t get much simpler than this -too simple?……..
Well that couldn’t have gone worse. 9500 call 197.5. 9150 put 14.5 Here are some ideas.
- Do nothing -and this can often prove to be the right move
- Write another strangle –put premiums are too low.
- Roll up the call side from 9500 to 9650 at a cost of 197.5- 96.5= 101
- Close out for a loss of 72 -least favourable tactic. (You could close and then sell the 9650 call as a ‘Hail Mary’ ) So this week it’s only slightly more catastrophic 9500 call 253.5 9150 put 12.5 a loss of 126 –sorry! ( We will consider all the above at expiry or sooner)
Trade 438 a Nod to Tasty’s Liz &Jenny
We seem to get burned for having upside risk so we go the Jade Lizard route. We sell a call spread and a naked put with sufficient premium to cover the call spread if it goes wrong. So, we will sell the 9700 call 72 and buy the 9750 call 51.5, giving us the bear call spread.(max possible loss 50) A credit of 20.5. We also sell the 9400 put for 31.5, giving us 52 credit. Logic of the trade? We get 52 if this expires anywhere below 9700 and above 9400. No upside risk
The 9700/9750 call spread 107 and 80=27 , and for the 9400 put 26 A loss of 1
Trade 439 How To Keep Out of Harm’s Way?
Here’s a put condor: 9800, 141.5 9700, 90.5 9600, 57.5 9500, 37.5 So here’s how it works, we buy the expensive 9800, sell the 9700 and the 9600 and for protection we buy the 9500. So while we hate to spend money we will have to shell out 141.5+37.5= 179. Minus 90.5+57.5=148, giving us a cost of 31.
In the event of a market crash it’s safe as that is as likely as a UFO landing on the Loch Ness monster’s head. (We own a long spread and sold a short spread, it’s bulletproof) However there seems to be strong support at 9700. An expiry at that level would give us 100-37=61. Will the market ever give us a break? Or rather, could we do better?
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.