Trade13 It’s Getting Hard to See any kind of Sense

Trade 11 revisited.Buy Cheap

The rationale for trade 11-the options were silly cheap. That same trade- a straddle but with 12 days to go would cost 47.5 for the 7200 call and 59.5 for the 7200put= 107. What if we don’t like those odds? We could go out to February expiry-40 days to go,and that trade would then cost 85 for the 7200call and 126.5 for the 7200 put=211.5.

Where is my Profit?

There is more than direction at play here-we have very low volatility.
https://www.google.co.uk/finance?q=INDEXEURO%3AVFTSE&ei=ihdyWJjODcXesgHdjouIBg so any drop would likely see a bump up in both premiums. We can profit from a drop. Directionally in plain terms if the Jan expiry options benefit from a move >100 we  have a profit. In the next 11 days. The Feb expiries -we need a move of 200. In 40 days. But which is better?

Where is my Volatility?

Based on the http://www.ivolatility.com/calc/ I came up with volatilities for these trades- Jan expiry call- 8.06 and put-12.41, for Feb call– 8.29 and put-13.92. There is no real way of comparing these with anything meaningful. So what’s the plan?

Musical Theta

To compensate for theta(time decay-remember?) we could hedge dynamically with very limited risk. The closer to expiry the greater the time decay (3.4 total for Jan)against (2.6 total forFeb). Jan OTM options have little value left in them,so we are very limited in hedging. Feb OTM options-not great either, the 7400call =20.5,the 7000 put 56.5. However one big move in the next few weeks and those premiums can easily treble. You could reduce your cost basis substantially while limiting profit-this is when the prices tell us what to do. The market does the running.

What’s Wrong with this Picture? Too Many Up Days?

Going short means taking on the infinite wallet of dumb money. Remember the market can stay dumb for a lot longer than we can stay patient!