Trade 37 Let’s Get It Wrong

Terrapin Trader,

 

 

A Horrible Trade Entry

Looking back at the week’s action, we seemed to peak on Monday and stair-step down. What’s the worst trade here? A trade that relies on a sideways market. In short a strangle.

Easy Mistake to Make

Let’s say our novice, or even this bad trader thinks.” I see the market doing nothing next week” All the action has happened and it will, therefore go back to sleep. Not the kind of assumption one should be making, nevertheless it may be right. I hope it’s wrong for our purposes.

Here’s The Trade

Short the 7550 call@ 7, short the 6800 put @7. Nett premium 14 (£140)– thus, probable margin per lot £2,000. Potential 7% in less than 3 weeks ROCE. So what’s wrong with it? It’s not a lot of bang for your buck, and risk is at 6786 and 7564. That high was made only 10 days ago, and on Monday the call was trading at 30.

Sell Premium, Sell Premium

I had yet another email this week with this message. ‘85% of option buyers lose money‘. To which I say 50% of my emails are rubbish. It is churlish (and childish) to make such a dumb statement. The outcome of selling in isolation often results in people like this getting their homes repossessed. I have 3 ‘O’ levels and therefore have no right other than hard earned experience to rubbish this statement.  Victor Niederhoffer anyone?

Published by Terrapin Trader

First found out about options in 1995.From the arcane magazine Exchange and Mart! First trade- a covered call on VOD in 1999. Made 10%,VOD almost doubled. That's when I realised I was not a good trader,and I was forgiven thanks to the amazing world of exchange traded options

2 Comments

  1. For so many trades now I have been hoping to show one that goes horribly wrong.
    I want to show how to repair a trade, but the market stubbornly refuses to do anything to help us fail.
    The flipside of this is that with a little knowledge (often deemed dangerous) one can make serious coin with options strategies

  2. Could now be closed out for 5- 4.5% profit in under a week. The little guys can win little and often

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