That Was The Week -Curate’s Egg of A Week
Conflicting Covid reports continue to move the market. However,the financial media tell us the market looks 12-18 months ahead. Comedy gold. We continue to suggest that this market is just for pure punters and normality is some months hence. I think many of us have followed: https://www.worldometers.info/coronavirus/
While nobody can possibly give an accurate picture, it is of great concern that Americans are actually taking to the streets to protest the lockdown. We know 100% that lockdown is a good strategy, as at its heart, the idea is to avoid overwhelming the NHS. Had we ignored isolation who knows what kind of issues we’d have? Better to overreact early, money is secondary. This makes sobering reading- Japan caught out and America’s Trump thinks the protests are ok- while US cases approach 1 million
Thus America, if this was a deliberate act, is the perfect target- and one wonders if those Trump supporters have thought this through. Bouncing back requires people to be either not infected or not dead. And, America’s Infection rates do not bode well.
Trading the Crazy….On Paper
So, we have the luxury of being able to step back, and the butterflies have actually done well overall.
Thursday and Friday’s moves favoured a couple of trades and this trader’s bearish stance was far from the actuality.
Thus,Friday morning’s melt up was a gift to our call butterfly:
So, one move that really goes against the grain for this trader is to close out the long in-the-money leg of a butterfly while leaving the rest.Thus by closing out the 5600 call at the open for >200 and leaving the rest, as shown at expiry, the 5800 calls which we had sold,expired for nothing. Thus we’d make >200 maximum. One has to question if any of us would have played it that way. This trader has in the last 2 months hit the sweetspot with butterflies, so this may bear some further scrutiny. However with such wide margins it would seem that incaution at expiry here was justified.
Outcomes of Legacy Trades
Zero.02
Paid 14 for the 5000/4800/4600 PUT butterfly – now 131/89.5×2/59.5= 11.5
Loser Debit 11.5
Zero.03
PUT butterfly 5250 203 5000 131(x2) 4750 81. Debit 284-262=22
Loser Debit 22
And yet, a look at the call side too…… 5600 242 5800 156(x2) 6000 92.5 334.5- 312= 22.5
Was 51 Made the full 200+!!!!Massive winner
However,our iron butterfly at 5500 5600 call 242, 5500 call 293 5500 put 303, 5400 put 259.5. 94.5 credit
Was 95.5, or close out on Thursday for 84 – credit 10 otherwise a loser debit 5.5
Zero. 0.4
So,……. a time(calendar) spread
April 4900/4750 calendar put spread 37.5-24=13.5 May 4900/4750 put spread 129-100=29
Sell April buy May costs us 29-13.5=15.5 Was 11 now 9.5 Debit 19.5
Zero 0.5
Spicey yet safe- not me…this. 5650/5500/5350 APRIL put butterfly -yes 4 (four) trading days to go. Prices:63,38(x2) 23.5.= Debit 10.5
Max loss 10.5, max profit 139.5. Made credit 36
Zero 0.6
We are into May expiry FTSE cash 5786 (June future 5813 ) Thus situation normal- contango. For this trader it means zip, as we trade in modest size.
So, let’s go nuts here and take the trade that blew up a huge fund. The 3×1 call ratio spread. 5800 184.5 6000 (96 x3)= 288. Credit 103.5
Logic of this trade? Precious little, as this is solely a case of ‘ light the blue touch paper and retire ‘
Risk?- well at 6100 things get crazy, as the 5800 call is worth 300, and the 6000 calls are worth 300. Thereafter you are in a world of pain. However there might be some mitigation with theta and vega, if volatility drops due to a rising market. If FTSE drops…..peachy
The 3×1 call ratio spread. 5800 184.5 6000 (96 x3)= 288. Credit 103.5
Now cost of 56 to close, so 103.5-56=47.5- would you? It’s a fantastic profit though margin would be ££££££
Compared to naked(ugh!) calls 96-64.5=31.5.
We are better by 50% and it’s a shedload more interesting.