Trade 98 Week Ending 21September

Friday Frenzy

Laugh? The media tell us it’s all doom and gloom, the High street and retail are finished. Then we have  Bl***y Brexit, as I’m sure history will name it. Or perhaps the inglorious devolution. I have to factor it in to trading, but how? Nobody has done a Brexit before, except with violence,and I’m not advocating that. We are in another paradigm whereby the stockmarket rises on BAD news from Brexit. Go figure. The £sterling drops agains the US$( commonly known as cable) by 1.49%, FTSE smashes up correspondingly. I have no idea why this works this way and I doubt there’s a rational explanation in reality. We are nett importers of everything-this is not good, it makes all our input costs higher. Go figure.

How Did We Do With Sept Expiry Trades?

Expiry brings with it PIN risk- that means you get pinned to the price after the 10:15am auction. Which was……..7436. FTSE went even more nuts after that. However, Trade 97*– I put in a few comments about closing out. Both short puts and calls went out for almost zero,on Thursday and you netted something like 103-20= 83. However had you stayed in the trade the short 7400 calls would have been a bit ouchy at 36 x3= 108. I never leave trades to expiry when it’s pennies to close out the shorts. To quote Fisher Black (from the famous Black Scholes formula) when asked about expiry ‘ put your head between your legs and hang on to your balls’. It is a lottery. Except you are not holding the lucky ticket you ARE the lottery and may have to pay out the winners.

When A Calendar is Not a Calendar

Trade 97– assume you have lost 108 due to your short calls at expiry -what’s to do? Take the loss and close out as you now own 7100 put, 7450 call for October expiry? That gives you 103,remember, or……….. How about selling a 7050 put for 9, which still leaves you with a put spread max profit 50 and zero risk. Plus……sell 2 of the 7550 calls at 46= 92. You now have a call ratio spread with risk at 7650, but which could make 100 tops, for October expiry. The trade now owes us the original stake 20+ (108-101)= 7. So, a total Debit of 27( We could of course sell another put for 9 making a put ratio spread with risk at 7000. These are just 2 of many ways to adjust.

Trade 96 That Other Expiry Trade

We had, unusually, a long call spread and as in the comments it did rather well.

We had the 7400/ 7450 long call spread. Prices 22.5 and 12.5 so we paid 22.5 for the 7400 call and sold the 7450 call for 12.5 which meant  a debit of 10. You could have got 30 for this, and here’s the other side of PIN risk. Holding through expiry with a LONG trade is not an issue. You cannot lose more than the debit, but can only make the maximum 50 spread. Thus,at expiry the 7400s were worth 36 and the 7450s nothing. Had FTSE expired at 7900 you’d still only make the spread the 50. This was, therefore, bulletproof against a dramatic rise.

Understand Your risk, Know Your Limits

*Worst was scenario for not paying attention with Trade 97? Original stake of 20,plus ( 108-103) 5= 25. Nobody plans to lose but it’s always good to learn when you do lose. Unlimited risk or ignorance of our position is not acceptable. We are not crypto bunnies, gamblers or chancers. We need to have a good idea of why we are entering a trade. And, not simply the one dimensional charting aspect-that can never work in your favour. We need the Greeks on our side,selling high volatility buying low volatility. We need to have a view, within a range of views. Expiry gives us timeframes to work with and http://www.cboe.com/framed/IVolframed.aspx?content=http%3a%2f%2fcboe.ivolatility.com%2fcalc%2findex.j%3fcontract%3dC1F2E16A-170A-4DE8-B06B-C41A0EA401C6&sectionName=SEC_TRADING_TOOLS&title=CBOE%20-%20IVolatility%20Services

The calculator gives us all we need.

Trade98- Something of a Mystery

It’s not our usual cup of tea but might be worth paying  ( 77.5,44,25, 14.5) = 23. It’s a (October)put Condor buying the 7450 put selling the 7350,and the 7250 and buying the 7150. It makes money between 7450-23 and 7150+23, so 7427 and 7173 are our limits. It can make maximum of 100,and can only lose the premium paid. Reasons for the trade?  I do not see a lot of upside,and this weekly chart suggests Fibonacci levels. The mystery is…… I make no accounting for the options prices, time frame or the Greeks. It’s a one dimensional stab at limited directionality.I also just got the last 2 years’ worth of expiry data and it is very interesting, but that’s for another time-check out the chart:

here’s the link: https://uk.investing.com/indices/uk-100-advanced-chart