Trade 69 Addressing Fear, Taking A View

Terrapin Trader, ,

Trade 69- Avoiding The Nasties

I love the versatility of options -it’s like being able to buy/sell a stock today/next week/next month. And when we want to spend nothing or get a credit,the choices are huge. Can I say mahoosive? We look at the permutations in Trade 69.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The above chain is a selection from March puts. I like puts and find calls much harder to trade due to the lack of volatility smile, which makes further out-of-the-money calls cheap in relative terms. From the above prices I need to add: 6750 last Friday traded at  11. Today it is  31.5. with 9.25 remaining trading days. The trebling of the price is what happens when volatility takes charge. Yes the FTSE dropped 2.5%, but Vol rose 38%. What can we gain from this? Is the 6750 put cheap, given its short life and distance from the market? What if it IS expensive? Should we decide to buy it there are many ways to finance it (besides selling a call).

Spreads Can Be Unequal, We Decide to Be Long the 6750 Put…… For No Particular Reason

You could buy a spread:long 6750 put and sell a 6700 put for 4 (31.5-27.5) Max gain =50minus 4,=46. Want to pay nothing? Sell 2 of the 6450 puts, but let’s notch it up to 10 lots of 6750s. Now -what can we see? We need to cover £3,150 in real money. What about 15 of the 6600 puts? 13 of the 6650s? 25 of the 6575s? Scale up and you can minimise risk, manage costs. While commissions are a factor, you may find your short options going out worthless in any case-and that costs nothing.

Let’s Get Greedy

I want a big juicy credit for my trade- let’s buy that 6750 for 31.5 and sell 3×6550s. Scale it up to 10 x30. £5850 minus £3150= £2,700 minus comms. Fancy it? Margin will be big- £20k? Comms about £200,say. Risk at 6450. Max gain £22,700 minus comms.

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. sometimes trading can seem a little abstract-it’s good to remember it’s real money,and to size positions according to the size of our account. Recently margin more than doubled- you need to take care and avoid over extending yourself.

  2. Smashed it!!!!!!! That trade could be closed out for a credit of 0.5 -That people, is £2,500 in your pocket for less than 2 days of trading. Risk was respectable,margin managed. And you want to trade bitcoin? Shares? Get with the real money

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