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Option Trading in Practice – Week 2

18 May 2018,

Dear readers, as I have announced in the first part of our option trading series, I’m going to tell you how our gas trading has developed in the second week of May. We’ll catch up with time and you’ll always have the next reports on time after signing into your client’s section on Quastic.

 

1. Summary of the week

During the second week of our series, natural gas has been just growing. And as we have entered with a clean short position, our portfolio, of course, has been slightly losing. We used this situation to open an additional small and aggressive option position (2pc for an 80,000 EUR account) at ETF: BOIL with strike 26 and June expiration (BOIL 15’Jun 26.0 CALL). Our average price was $ 1.70, which means a break-even for BOIL at $ 27.70. For now, however, we are losing on this position.

There were no significant fundamental reasons for gas growth, rather it is a classical price oscillation in a certain band, and next week gas can both grow and fall. For us, of course, the ideal scenario would be the drop of the ETF: BOIL to $ 27. We could then close part of the options with full profits and look for new opportunities. We would have probably rolled some of the positions to the next month because we could get the most from the time premium.

What I would like to emphasize in this commentary is the gradual disintegration of the time premium for the May sold BOIL option with strike 27. Since the beginning of trading on 1.5.2018, ETF: BOIL price has practically remained unchanged. On the other hand, the option price, which we are shorting, dropped from USD 1.18 to the current USD 0.90. So, option trading approach allowed us to earn even though the position went slightly against us. This is very important for all traders and investors.

This is a rather lazy type of investment, we do not run anywhere, and we do not even need to do a lot of trades. Last week, we were at a loss, as ETF: BOIL rose by about 5% and approached our strike levels. From the start of trading, we are still about $ 100 plus, and the next week, when the options will expire will be decisive for overall performance.

 

2. Report

Obr.1.: Account Overview - základní charakteristiky a vývoj účtu

Fig.1: Account Overview – basic account characteristics and development

 

Obr.2: Risk Measures - ukazatelé a parametry rizika

Figure 2: Risk Measures – risk indicators and parameters

 

Obr.3: Trade Summary - celkový přehled otevřených obchodů

Figure 3: Trade Summary – Overview of Open Trades

 

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