Looks a Bit Dull, This Week’s Trade ….
On the left, the left hand column of the FTSE Nov. options chain. What lives on the left? CALLS What ARE those numbers? Left to Right:
Open Interest- – the number of existing positions at that strike e.g. 17828 at 7600
Next column in- last traded volume-irrelevant
Next column in- Closing or settlement prices-these are what we use for consistency.
And the Next column in- time of last trade
Next column in- change of price of last trade zzzzzzzzzzzz
Next Column in – room temperature -kidding just trying to keep you awake, it’s the last price.
The Next 2 columns- bid/ask is zero and zero as market is closed
Last Column…….. Strikes. 7400 to 7700
Dull? That was Mind Numbing-Let’s Get Into the Business of Trade 55
We have a number of choices, or options if you like. The premise is this: The market is likely to stay above 7500, but maybe won’t go too crazy. Thus to do this we can buy a call-the 7600 is cheap at 16.5, and there is the greatest open interest there. Are those all long positions? Surely someone has sold all 17828 calls. In itself open interest means little. I used to think it was where most people had sold options, and they are often correct. Make up your own minds there.
Trade 55 Getting To The Point.
You guessed right- a Butterfly. buying the 7500, selling 2x the 7600 and buying one at 7700 (63.5+3.5= 67 minus 2×16.5) = debit 34
FTSE= 7560 Therefore, we are paying almost nothing in time value for the 7500 call. The 7700 is just for insurance. A Butterfly is a long spread and an equal short spread, so no more risk other than the debit paid. Max profit at 7600 =66 (100-34) Not sexy is it?
What Can We Do With Those Prices?
Have a look at a condor, a cheaper variant- 7500,7550,7600,7650. Debit ( 63.5+7.5) – (34+16.5)= 20.5 Max profit 50-20.5= 29.5.
