A test trade using a very short term options contract (Expires this Friday) and a neutral straddle strategy.
Last week saw the return of the Trump jitters, as the world braced for a new trade war. Rising interest rate prospects were also raining on the parade in the UK and US as it looks like the easy money party was ending and the Federal Reserve (as well as BoE) would have to keep rates going higher to stop the economy from overheating (or stop the yield curve from inverting as we slowly approach the end of this economic cycle).
However, it seems the trade war threats might have been a bluff to try and get a better deal out of China. Therefore, all is well and stocks can reach for those all time highs... Right?
At this point, I think the market is wary. Investors have one foot out of the door ready to run to safety, and that makes predicting the direction a lot more difficult. More news about Trump "not being happy with China during trade negotiations" could easily see any recovery wiped out - unless the market stops caring or finds something else to worry about. But that's another story.
From a technical perspective, the price action found support on the blue line; however, that has since been broken. A small re-test of the support was followed by a further collapse. This could potentially see the price head back up to the support line, and bounce off as support becomes resistance (a reversal of polarity).
So I have bought two short term options contracts that expire at the end of this week. The strike and expiration are the same, making this a straddle. The main risk being that the price does not move that much, which would see this trade fail.
Target for the call is the vicinity of the prior support. Target for put is the vicinity of 6730, a previous area of support late last year.
Last week saw the return of the Trump jitters, as the world braced for a new trade war. Rising interest rate prospects were also raining on the parade in the UK and US as it looks like the easy money party was ending and the Federal Reserve (as well as BoE) would have to keep rates going higher to stop the economy from overheating (or stop the yield curve from inverting as we slowly approach the end of this economic cycle).
However, it seems the trade war threats might have been a bluff to try and get a better deal out of China. Therefore, all is well and stocks can reach for those all time highs... Right?
At this point, I think the market is wary. Investors have one foot out of the door ready to run to safety, and that makes predicting the direction a lot more difficult. More news about Trump "not being happy with China during trade negotiations" could easily see any recovery wiped out - unless the market stops caring or finds something else to worry about. But that's another story.
From a technical perspective, the price action found support on the blue line; however, that has since been broken. A small re-test of the support was followed by a further collapse. This could potentially see the price head back up to the support line, and bounce off as support becomes resistance (a reversal of polarity).
So I have bought two short term options contracts that expire at the end of this week. The strike and expiration are the same, making this a straddle. The main risk being that the price does not move that much, which would see this trade fail.
Target for the call is the vicinity of the prior support. Target for put is the vicinity of 6730, a previous area of support late last year.
Trade closed: target reached:
The FTSE100 edged higher this week, possibly helped by the value of the pound taking a rest. Surprisingly, despite yesterday's hoopla in the US markets, the FTSE100 gained, creating enough price movement to make this trade profitable.
£280 profit.
£280 profit.