Trade 26- Going down?

Prices from the Ice

To the left is the options chain for May FTSE calls (well, a part of it). We are looking at the different ways to go short by selling calls. On the far left are the premiums. Options chains always have calls on the left, so it’s easy to hone in on your particular poison.

How to Trade This

Simple choice if your margin is limited- you sell a spread. Perhaps the 7500(33.5)/7550(22). Selling the 7500,buying the 7550. Credit of 11.5. Max risk =50-11.5= 38.5 Risk at 7511.5 (the short strike plus premium taken in).( Or, you could try the 7550/7600 at 8.5).

Next choice- if margin is not so limited perhaps a ratio spread- 7500/7550. Buying the 7500 selling two of the 7550s. (22×2)-33= 11 Credit. risk at 7600. In theory risk is unlimited, but you OWN the long spread.Margin required.

Choice 3 selling a naked call. The 7600 is at 13.5.  More premium, risk at 7600,margin required.

Which is the Best?

It’s impossible to say as it’s a personal matter. Some people only ever sell naked, some like a little protection. Others may favour the limited risk, as this reduces margin, to the difference between short and long strikes. It’s how we manage the losers that counts.

Cut Your Losses, Run Your Profits

The classic advice- how would you cut your losses if any of the above trades went against you? We want to show how but have yet to have an ugly position that merited adjustment. Stay tuned………