Calling the Market?
Trades 46 and 47 did well and so I am inclined to turn from the ‘dark side’ with this trade. We want to see some UP. FTSE is only down due to the strength of the £-this may be illusory. The UK is subject to many headwinds mainly BREXIT. Let’s be honest I don’t have a clue where the market is going. Like everyone else.
Going Risk Averse or Getting Spicey
This trade is a call ratio spread. We buy one 7400 call( 16) and sell 2 of the 7500 calls(5.5×2). Cost 5. We can go risk averse by buying the 7600 call for 2. We can go spicey with a short(sold) 6600 put for 8.
What’s The Trade, what’s the Reasoning?
Delta and gamma with the straight ratio spread are fine, and volatility no longer seems to be a factor. Volatility, of course, drops as markets rise. This is a cheap trade with unknown prospects but max profit is 100. Buying the 7600 call for 2 is a great bit of insurance.You then have a butterfly. Selling the 6600 put (9% below market) will pay for the trade. With a ratio spread you need margin,with a butterfly you need no margin, but your costs are high with commissions. With a naked put,you need margin. So- choices,choices.
What’s the Plan Stan?
Personally I’d buy the butterfly and if the market drops, I’d be looking to take a put position using increased volatility. The butterfly has zero risk but you could use the long 7400 call as part of another trade.With our track record of so many winning trades, the common thread is:It’s all about the exit. Some trades run to expiry, some show a quick profit. You have to take those decisions from a position of calm, without regret that you could have got more. You can split your ‘lots’ too- close out half or a third of the trade. But, mostly, ENJOY!
I’ll run with a CALL debit spread, with volatility being so low! If it goes wrong, there is an option to repair by adding a ratio and converting it to a butterfly.
We have had a decent drop of 2.5% but still there is no fear, so like you suggested it is probably pure £ adjustment.
The butterfly is now 12,( paid 7,sold that cheeky 6600 put for 8= credit of 1) but with that short put trading at 4, we make 5 from the butterfly and 4 from the put=9. Or… a very very respectable return of£90 on margin of probably <£1,000. I think we can book a winner but the 'fly can run to expiry to claim that max 100. We'll keep an eye on it
Another way to summarise- to open the trade was a credit of 1 and to close it (12-4) a credit of 8. Happy days