Trade145 Week Ending 16 August- Don’t Panic!

 

 

That Was The Week

The US got a bit crazy with that 3% drop on Wednesday. This trader thought there’d be a bounce and closed out what would have been the perfect long put position at 7200. However 30% of max profit is ok too. Traders nursing big losses in the recent turmoil may find their focus altered for the worse. Thus we aim to obey the golden rule- do not lose money. Options allow us to be deeply flawed and still make good profits.

How Did Our New Found Magic Indicator Work?

 

I’d like to say disappointing but that doesn’t scratch the surface! The market just carried on down and confirmed our view that indicators in isolation are of limited use. Analysts might disagree and proclaim their dark art to be supremely useful. So, good luck to all who prosper using charting, I do ok with ranges- support and resistance. We’ve now come down from ± 7700 to ±7000. A drop of around 10% in itself means nothing, but may provide a platform for buyers.

So What’s going On?

Pundits, and everyone else now have the opinion that the global markets are headed south. We are told bond yields are negative the yield curve has gone inverted and this: https://www.marketwatch.com/story/pioneering-stock-market-technical-analyst-says-hes-never-seen-such-a-confluence-of-confusion-on-wall-street-2019-08-16?&mod=mw_theo_homepage&mod=mw_theo_homepage

Options traders like us, however have the additional tools of the Greeks and volatility. So, we take a view on price- we sell high and buy low.  We use time decay to our advantage, while directional players have no such luxury. However, perhaps it’s best that options remain the closely guarded secret we enjoy.

Those Legacy Trades- Just The One

Trade 143 was a put butterfly- possible close out for 50% profit. (Told you so!) We ran it for fun to expiry. It went to zero! Greed & Fear…….

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our Sept Iron Condor- selling a put spread and a call spread:

short 7000 put long 6950 put for credit 71-60.5= 10.5

short 7450 call long 7500 call for credit 35.5-25=10.5.

Total credit 21, max risk 50-21 =29.Risk at 6979 and 7471.

Currently 13 and 5.5 =18.5 

You could add another say 6900/6850 put spread for 9.5 and 7350/7400 call spread for 10.5 =20. So, our risk is reduced at the high end to 7370, and below, to  6959. However a really big move either side and we could lose 59 max as we now have two 50 point wide spreads.( 100-41)

Trade145 

Theta lovers-one for you! A ratio calendar but as we need to keep things simple we’ll stick with puts.Thus we BUY the Oct 6600 put and SELL two of the Sept 6550 puts. Prices 1×62.5, 2x 31= 0.5 Debit.

For fun…..Calls 7350(Oct)  64.5  (Sept)33×2. Credit 1.5. So we will observe this…