Mum's the Word!

While the market is continuing to fall, the trend is your friend as they say so I want to stick with this strategy to protect my synthetic covered call trades. While it has been falling though, the probability of a bounce is only increasing, so I want to make the protection strategy have a high risk / reward ratio so that if it does continue down the percentage return is considerable, compared to the risk if this happens to be as low as the market will go. The trade I placed below has the possibility to return over 900% or 9 times the investment.  

Trade:

Buy 1 XJO July 4450 Put @ 84 cents

Sell 4 XJO July 4300 Puts @ 45 cents

Buy 3 XJO July 4250 Puts @ 37 cents

Net cost 150 cents ($150 per contract)

Max loss $150 per contract

Max return $1.37 ($1370 per contract)

 I have traded 4 contracts.

This trade has a maximum risk of $150 per contract, and a maximum return of $1370 (risk reward 1:9)

Breakevens exist on the trade at approx between 4437 and 4270

Please find below the options pay off diagram, and the share price chart showing the strike ranges for the butterfly. Notice that I have chosen a narrower range this month to help increase the potential return. If the index does manage to fall below 4250 I will look at taking profits early as the trade may have had some time to decay between now and then. Otherwise it will be left until expiry.

XJO PayOff Diagram

XJO chart showing breakevens (green lines)

Thats all for now, any questions or comments, please post below, I’d love to hear from you!

As always, Happy Trading and remember…

Mum’s the Word!

Following on from my last post 4 weeks ago, my latest XJO butterfly trade expired on Thursday, with a nice profit of 218%! Not as big a return as the previous trade, but still, with all this weakness in our market at the moment, this trade produced a GREAT result in the current conditions.

Just to recap, here is the trade I placed, and the result.

Trade:

Buy 1 XJO June 4600 PUT

Sell 4 XJO June 4300 PUTS

Buy 3 XJO June 4200 PUTS

Net cost 38 points ($380)

Max return 263 points ($2630)

2630 / 380 = 692% maximum return

I traded 2 contracts on this trade.

RESULT: 830 Points at Expiry = $830 x 2 = $1660

830/380 = 218%!

A pretty great result in my opinion.

The market seems to be continuing its downtrend, and as I want to protect my downside further, I placed another butterfly on Friday, and will post the details of this trade tomorrow, so lookout for that.

I have also extended the special price of my new ebook by another few days by popular demand, so if you haven’t already, click the New E-book link to the right of this post, and get yourself a copy!

As always, Happy Trading and remember…

Mum’s the Word!

As promised yesterday, here is the latest butterfly spread trade I inplimented yesterday. I put this trade on to protect my other bullish trades, from anymore weakness in the market. I’m glad I did as today’s market weakness may continue, and its always great to know I have protected my downside, for very little risk, but very GREAT reward!

We are in a similar situation as we were when I placed the first butterfly, where the market is falling, and it’s difficult to know which level the market will find support. Because of this, just buying put options out right may turn out to be too expensive, so we need a trade that has a low entry cost, and a high potential return if the market keeps falling. That way if the market does bounce the loss is minimal and I will not have spent a large percentage on protection.

The trade below has a maximum return of just under 700% and expires on the 16^th June (next expiry). I still expect the market to be in a sideways trading pattern and if it does fall into the lower half (see the chart below) this trade will work well. If the market falls below the major support level at 4200 (over 400 points from current price) this trade will expire with a loss, been the entry cost.

The chart below shows the profitable range between the green lines, and maximum loss below the red line, or above 4600. Maximum profit is at 4300. Further below is the options pay off diagram.

Trade:

Buy 1 XJO June 4600 PUT

Sell 4 XJO June 4300 PUTS

Buy 3 XJO June 4200 PUTS

Net cost 38 points ($380)

Max return 263 points ($2630)

2630 / 380 = 692% maximum return

XJO Chart - Green lines are profit zones

 Below is the PayOff Diagram for this trade. To understand what Payoff diagrams are and how they work, be sure to read my latest E-book!

XJO Butterfly Pay Off Diagram

I will post the result from this trade after expiry or on closure of the trade, whichever comes first!

As always, Happy Trading and remember…

Mum’s the Word!