Friday, 21 December 2007

Back into the FTSE leveraged downside trade

Just did the following:
Sold FTSE Jan 6200 Call at 303.7 in £5/point, so £1518.50 premium.
Bought FTSE Jan 6200 Put at 52.7 in £30/point, so £1581 premium.

Net cost £62.50 which is about $124. For ref, the FTSE was at 6424.

Similar to my trades from earlier this month that I've already exited (see FTSE here and DOW here), I'm pretty bearish on equities but appreciate the squeeze factor that seems to be in them, so I think the strategy is to trade from the short side through fading any strength and buying the dips.

3 Month FTSE Chart

Going into options expiration today, global equity markets have moved up, so taking advantage of that to sell the FTSE. I'm doing this rather than the US markets as I think the US has been hit with a barrage of bad news lately, such as MBIA/monolines, Investment Banking writedowns and continuing disgusting housing data, and is impressive in how it hasn't cracked under that pressure. So I'm waiting for higher US prices before I fade that move.

Contrary to that, I think the UK still has bad news to come out. Housing is only just beginning to crack, and has a considerable way to go. I think we'll have increasing talk of a UK housing "crash" going forward, and the realisation has yet to sink in that UK equities were levitating in the first half of 2007 on potential private equity buyouts, and now that hope has gone.

Finally, for you technicians, I see that 1) the market has just moved up to both the 50 and 200-day moving average, which may provide resistance, and 2) the 50-day is just falling under the 200-day, the so called death cross!

So the ideal outcome here is that as soon as options expiry is over today, the market can get back to fundamentals and push back down to the 6100 level it was recently at. If it can do that in the next week or so, that would be around a £3500 profit ($7000) or so.

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