That Was The Week We had a Tiny Drop
So, as we see 2 up days to end the week, the signs of more downside and weak buying seem to be saying something. However, the headwinds of Rachel’s tax grab next week may be a false flag. So often we see the bad news greeted with more buying. And yes, the market can go to infinity, hence the higher margin required for naked calls. So more madness in the US, more dissent as our own government earn themselves enough wooden spoons to start an Etsy store. Russia, China making their presence felt with robust actions and espionage against our little islands. Trump’s U-turns with tariffs and spats with various nations and people he now calls ‘friends’ are an absurdity that affects everyone. Enough said.
So how are we to make sense of the stock market? Valuations? They went out the window some years ago, when BTFD became the fashion. You know: Buy the f******g dip. because that is a mindset that is hard to challenge. It may also be the mindset of Algo’s A.I and every retail trader who thinks they are a genius. Of course it has no ending and fresh ‘meat’ comes into the market in the form of newbie traders whose only understanding is to buy something. Anything with A.I or a celebrity is the ‘plat du jour’.
Options
Perhaps the answer for us options traders is to be in the market always and adjust as and when certain conditions are met. We have one trade that is deep underwater and we show how we can pull in premium each month as compensation. Holding onto a stock in the same manner would make no sense. We are in effect trading the ‘sunk cost fallacy’ where it’s better to take the hit now. (It usually is) However we won’t ever know if we don’t try, and no actual people or animals are harmed in the process. Being in the market with options can also mean you are market neutral so weekly/monthly gyrations don’t cause too much grief. We can actually trade FTSE options, every month, unto May 2036. ( March has actual prices!) https://www.ice.com/report/265
In The Inbox
Nothing of note except iVolatility’s offering: https://www.ivolatility.com/news/3105?newsletter=11172025&email=davideppel1@aim.com
US traders may find their trade recommendations interesting, but as we don’t trade stocks, there’s no recommendation.
Trading coach Paul is offering real hand holding coaching https://veterans-trader-project.teachable.com/p/2026-trader-transformation-mentorship
Lovely bloke and the real deal, in fact trading coaches are commonly employed for actual full time traders not just wannabes. We all go through mental issues, and this is not an easy business.
Distraction Trades
ADA was $0.5053 now $0.3984 ( I closed out above this level long ago)
XRP was $2.2592 now $1.9038 So, our chosen Cryptos are unloved again .
DAX : 4 trades one win,150, 2 break evens(+40 ) one loser(-40) Nett 190
UK Gilts Were £15.97 now £15.95 This is based on the Vanguard ETF. Surpassingly robust considering
Legacy Trades plus new trade 442 Five Wins one Loser
Trade 424 High Roller
PRECIS: We start from a losing trade as below. Short calls are rarely a good idea.This is a ratio spread 8450/8650 calls
Last week: 8450call 1226 8650call 1027.5 x2 gives us 829 (against our credit 266 or as legacy147.5 )
Was 8450 call 1249.5 8650call 1050.5 x2 gives us: 851.5 -Expect a roll to December for credit ± 38
Rolling to December gives us 53 This was the average from 19-21 Nov. So our cumulative credit from Oct now 319 Or from August, 147.5. We are in debit of 737 ( 1,125 minus 931×2 )
Trade 436 Who Knows What Next Week Will Bring? WIN- could have done better
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!
Was 26 and 9.5×3= 2,5 debit A sorry sight again.
Was 26 and 9 x3= minus1 Rinse and repeat the misery!
Now 12.5 and 4×3 = 0.5 Really a poor outcome, we run to expiry.
Best we could do: Thursday was 12. Sort of a WIN
Trade 437 Calling the Top is a Mug’s game WIN
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’ )
- Last 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)
Was 213 and 12 -Yikes! Let’s adjust and roll up the 9500 call to 9650, for a cost of 109.5 and the put to 9500 gives us 39-12= 27. 82.5 Cost (our initial credit 140, is now 57.5)
Now with no adjustment 9500 call 216.5, the 9150 put 6.5= 223 Had we rolled up the call to 9650 we’d now have 93.5 debit along with the cost 101.(Our original credit 140 remember) Ouch!
BIG WIN! Expiry at 9465 calls and puts are worthless, collect 140 Adjusting was clearly a bad idea
Trade 438 a Nod to Tasty’s Liz &Jenny WIN!
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
call spread now 75.5 and 53 =22.5 9400 put 26 =48.5 (our credit was 52 remember)
Call spread is now 61.5 and 37= 24.5 the 9400 Put 12.5. WIN! ( credit 52, cost to close 37 gives us 15) We run to expiry and expect, nay, demand the full 52.
We keep the FULL Credit 52 WIN!
Trade 439 How To Keep Out of Harm’s Way? WIN!
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?
Previously, those prices in order, 161, 101.5, 62.5, 39 =35 ( it cost us 31 )
This week’s prices in order 121,62.5,31.5,18= 45 ……. Win! Well sort of.
This went to ZERO at expiry but you do not run these to Friday so 40% of max profit was acceptable and was the best we could do
Trade 440 Let’s Go Time Travelling WIN!
We’re still in the November expiry cycle so theta(time decay) gets brutal for the near month. So we want to buy December options and sell November. Nov 9400 put, 26, Dec 9400put 73 for a cost of 47. Yes, we’re not going to do that, we’re going to buy a spread buying the Dec 9500 put for 94 selling the Dec 9400put for 73. Now we own the Dec 9500/9400 spread and sold the Nov9400 put for a small credit 5. This can, of course, make 100 assuming the Nov 9400 put expires for nothing, and the market takes a d*mp! No upside risk.
November 9400 put 12.5 Dec 9500 put 76.5, 9400put 59.5 Gives us 4.5 WIN! (not a hint of irony again)
November9400 put expired worthless so the Dec 9500/9400 spread= 29.5, plus our entry credit 5= 34.5. WIN! More to come with this
Trade 441 Daring, Possibly Ruinous Trade LOSER!
We always say we’re about teaching by doing. So here’s a trade we’d never normally contemplate. The value of the straddle (at-the money call and put) is so skewed to the next month we’re going to have fun. So Nov 9700 call and put are respectively 61.5 and 62.5, the December straddle 161 and 135. Now if the index at expiry is still at the same level 9700± the near month straddle is worthless. Would you sell it naked? What if we sold 2 November straddles and bought 1 December straddle? Cost 48 Risk at <9600 and >9800.
LOSER! This is of course the reverse of our regular strategy which would be to buy the cheap straddles, near month and swallow the ugly theta. Sorry if that sounds weird. However this is a brutal confirmation that this is a terrible idea. Now we know.
Trade 442 We Use 440’s Win For Further Credit
So we arrive at the happy position of owning a December 9500/9400 put spread worth 29.5. (125.5- 96).
Our possibilities: Keep the spread and run it to expiry for max 100.
Sell the 9500 put for 125.5 and buy a January 9500/9400 put spread( 166.5-135.5= 31) to protect the now naked 9400 put. Credit: 125.5-31= 94.5
Or…. We sell another Dec 9400 put for 96. This now gives us risk at 9300, but we have juicy credit
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.