Another Ratio Trade
Keen observers will firstly question the price of the 7150 put. There are times when trading these strategies that you get what is known as a split. Thus here half of the puts were for 14,the other half for 13.5. This gives a trade cost of 1.5( buy the 7250 at 29,sell 2 of the 7150s @13.75(27.5) gives us a nett cost of 1.5(FTSE was 7340)
Why This Trade?
We have seen this put ratio spread strategy before. It’s a theta (time decay) play. Sorry for repeating but this is trade 38. I think we showed more variety than much of today’s pop music!
Our reasons for this trade: It’s cheap, at £15 a go, even trading say 20 lots it’s not going to break the bank. You still require margin, as you are ‘naked’ part of the trade. However the biggest element here is the market.
Whither Goest the Market?
(Couldn’t resist a bit of Gothic language to emphasise my concerns.)
FTSE ‘seems to be’ drifting lower. It hits highs then drops. Since early June FTSE has drifted about 3% lower. This trade has another 2 weeks to capitalise on any further drop. We have risk at 7050, our Goldilocks range is anything below 7250. I’d be happy to see a profit of 20. We have a 33% chance really- market can stay the same or go up and we lose. Sometimes we do nothing as that is the smart trade, but we shouldn’t lose any sleep over this one.
Note: this was NOT the closing price of FTSE and the reason for this will be revealed in time.
there was an opportunity to close this out for 4 this week but that is not what we are looking for -this is a fun trade -we want to win big or just let it fade into oblivion