Is this Rally for Real?
The cynic in me says that this rally is ‘froth’. Yes the £ has dropped, making FTSE100 more attractive to foreign buyers. Yes, FTSE100 companies are international. Yes volumes get thin this time of year. So… why position for a drop? Let’s take a look
Another Combination-short call, long put (about turn – long call short put)
The only reason for this position is in anticipation of a drop and a big rise in volatility, so how do the numbers stack up? Delta: .1898 against .1315, Gamma:13 against 6,Theta: .7165,against .8608. Vega:6.3198 against 4.9698. Not one of the Greeks is in our favour, so let’s turn this around to sell the 6600 put, and buy the 7150 call. I have never made money going with the market, which is why I call it the dumb money. But in this situation why would you sell an option with volatility at 9.18, and buy 14.31? So we are going to look for a quick turnaround with this, on the basis that a thin market may top out very quickly, and with FTSE, 7000 may be the top, give or take 20-30 points. (Just my view)
What’s The cost of This Trade?
It’s virtually zero cost, selling the put at 22.5 and buying the call at 22,so let’s say it’s flat ( 0). We need margin, and this may be around £1200 per trade (margin is alway needed when selling options) I have my concerns as the weekend is a great time to release bad news and Italy’s oldest bank just went pop. This is a problem which may snowball, so I’m not comfortable holding this trade for more than a few days. That’s just me, the market can go to the Moon, there is enough dumb money in the world! (QE-the future stolen from us, to prop up misbehaving banks that still misbehave)
In a normal world I would not be selling anything with volatility at 14%, so please take this with a large pinch of salt. I have a number of December positions and have yet to take January trades,and trade 10 would not be on my list