THE DIFFERENT WAYS THEY HURT YOU

 

“Yea, not quite that kind of hurt, but close!”

When markets are very volatile, market makers whether they’re at NADEX or 

scumbag LP’s at Turnkey, 1) jack the spreads higher, 2) demand and get more 

“slippage candy” from fills, and 3) jerk the market around violently looking 

for stops. When VIX is dead, they bleed premium out of your positions like 

water out of a squeezed sponge … it matters little which market.

After watching NADEX markets closely over these last months, I’m pretty 

sure they have only one market maker for all products and markets … I could 

be wrong of course, but I don’t think so … and that market maker [or LP] is 

IG Group, London, which coincidentally is their parent company. “Gee, no 

conflict of interest there, huh”?

What leads me to that conclusion, is the dramatic drop in volatility in pretty 

much all markets, but nowhere near the drop in premium “optionality” that 

should have come with the respective call spreads ranges going lower … well, 

how come? … well, how about cuz there’s no competition for starters, and 

they can pretty much price ‘em where they want … and when VIX drops, they 

don’t want to get stuck short “gamma”, so they price them accordingly 

… that means if you buy ‘em you’re more than likely overpaying 

“bigly & yuge”, and it’ll be like putting money in a slot machine.

Today a perfect example in GBPUSD … around 8:45 AM EST, the nearest 

floor & ceiling call spreads had combined premium of 110 PIPS … that’s a 

helluva lot of premium to pay for 6 hours 15 minutes to expiration, with Cable 

already having an approximate 130 PIP range … you gotta make up 110 PIPS 

somewhere, so if the market diddles around, you’re simply toast … well, the 

market has diddled around, and here at 1 PM EST, the premium is at 69 

… and if nothing happens until 3 PM EST, they’ll be a lot lower than that 

… again, the problem is they were vastly overpriced to begin with, and you 

would need something breaking “Brexit” wise to get that kind of move 

… maybe, but I wouldn’t count on it. 

By the same token, oil call spread premiums are also priced extremely high, 

and with today’s range of about 70 cents per barrel, good luck with that 

… there’s no way in hell you make money … and with oil’s 20 Day Range 

MA going to go lower again after this week, it makes zero sense to pay for 

something you’re not getting … viz., volatility!

Gold? … it’s its own special kind of stupid at NADEX … extremely wide call 

spread floors & ceilings, with most at $50, and one at $100 … not only does 

this mean increased margin cost, but it offers no optionality protection … add 

to that a very wide spread + commission, and who wants to trade gold with a 

60 - 70 cent net cost per OZ.? … and it’s the same in silver. Stock indices? 

… fugetaboutit! … VIX here has been literally crushed to a pulp, but call 

spread premiums are only down slightly … again, the LP isn’t gonna get 

caught short gamma to a bunch of small retail specs … you either pay up or 

don’t play … “well, that’s an easy decision to make, see ya later”!

So, we wait, cuz that’s all we can do … otherwise you’re playing slots, and 

that’s not what I’m here for or want to do … until tomorrow mi amigos 

… Onward & Upward!!

-vegas

OUR NADEX SIGNALS SERVICE IS UP & RUNNING … DAILY 

WTI CRUDE OIL SIGNALS & “VOLATILITY” STRATEGIES 

IN 20 OTHER MARKETS, INCLUDING COMMODITIES, FX, 

& STOCK INDICES! … “what on earth are you waiting for”?

 

A LESSON IN GAMMA

 

“Never ask an options trader what time it is!”  

I touched on the subject of Gamma yesterday, and it’s important everyone 

really understand what is at stake here … “anytime you’re trading any 

financial derivative that doesn’t go tick for tick with the underlying cash/spot 

market, it therefore has some element of “optionality” to it … meaning of 

course, it is subject to the whims of the 4 “Greeks” … i.e., Delta, Gamma, 

Theta, Vega … protest all you want, and if you ignore them it’s gonna cost you 

money”.

When utilizing the “synthetic Christmas tree strategy” [2X1] in trading 

GBPJPY and/or EURJPY, half of your position [the 2 lot side] is simply a 

“synthetic” LONG call or put, and all 4 “Greeks” play a role. To briefly 

summarize, Delta = rate of change of the call/put versus the underlying 

cash/spot of the futures contract … by definition the Delta = 0.50 when the 

strike price of the option [NADEX Call Spread floor or ceiling] = the price of 

the underlying instrument … Gamma is the rate of change of the Delta 

… Theta = time decay to expiration and plots the rate of evaporation of time 

premium to expiration … Vega = volatility increase/decrease as the 

underlying market trades and the impact on the option.

While all 4 play a role in our service signals recommendations in the volatile 

FX pairs of GBPJPY & EURJPY, the two most important are Theta & 

Gamma, where when Gamma dies and goes quiet, Theta definitely kicks in 

and it’s like watching ice melt on a sidewalk in the Summer. There are two 

types of Gamma, those who play the short Gamma game, hoping for time 

premium erosion that is guaranteed, and thus provides what appears on the 

surface of an argument to be the most logical strategy for profit, and those 

who are long Gamma, looking for a market to move and make them money.

And while nothing you do can guarantee winning trades 100% of the time, 

every “professional” out there who has written books on options, always says 

the same “Hoover Dam” thing, which is you want to be option sellers to be 

MAX profitable, meaning of course you are gonna be short Gamma. “Folks, I 

got a “bigly & yuge” problem with this approach, cuz at some point you’re gonna 

get caught short Gamma in a rip snorting move you can’t cover effectively, and 

when that happens, whether you realize it or not, your account is “buh bye” with 

losses that are eye watering to say the least … it’s not a function of “IF”, it’s a 

function of ‘WHEN”.

Over the course of my trading career, which spans many blue moons, the 

number of people carried out “toes up” from being short Gamma is 

astounding … the number from being long Gamma? … “crickets”! So, in 

order to help us achieve ultimate profitability & success, I choose those 

markets that have two [2] critically important criteria; 1) MAX consistent 

daily volatility and high daily ranges, and 2) premiums that are reasonable 

given the MAX volatility … right now, that would be EURJPY & GBPJPY 

… stock indices & crude oil fill criteria #1, but the premiums required to 

enter positions are insanely high, thus making them not good candidates at 

present … gold, if it could ever get up off its ass and actually start to trade 

again, has the potential to be like GBPJPY, but in its current state of lethargy 

& manipulation isn’t a good candidate either … other FX pairs are simply 

too inconsistent volatility wise and present more of a problem being long 

Gamma, to consistently be money makers.

Situational awareness also fits into the positional equation, and asking the 

important critical thinking questions before a position … last night I told 

signals service subscribers, that even though premiums for EURJPY & 

GBPJPY were incredibly cheap [the lowest seen in weeks], Friday’s present 

volatility problems in the new paradigm of trading … specifically, Friday’s 

have become “position squaring” day, and unless there is to be news or other 

political factors to be considered, Friday’s are not “moving days” for FX, and 

have a very high probability of being dead, so there isn’t gonna be a trade 

here … so why are market makers offering us “gifts” via low premiums on 

the open? … what do they know that most traders don’t? … “well, what they 

know as well as I know, is that Friday’s are roadkill for trading”! And as I 

write here early in the AM, it’s exactly that … nobody should be surprised by 

this, and premiums are indeed melting like ice on a sidewalk in Summer.

For those keeping score at home, directly below a table of key events in the 

“shitshow circus” a/k/a “Brexit”, with key events in the following days which 

will affect GBPUSD & GBPJPY.

 

click to enlarge

So, onto next week, and we’ll see what happens on the open Sunday night 

… blog update on sunday night as well … I’m outta here 

… Onward & Upward!!

Have a great weekend everybody!
 

-vegas

OUR NADEX SIGNALS SERVICE IS UP & RUNNING … DAILY 

WTI CRUDE OIL SIGNALS & “VOLATILITY” STRATEGIES 

IN 20 OTHER MARKETS, INCLUDING COMMODITIES, FX, 

& STOCK INDICES! … “what on earth are you waiting for”?

“WRONGING” YOUR WAY TO RICHES!

 

“Well, we’re gonna change that!”  

I’m gonna start today with a history lesson … and that history lesson is 

authentically documented via a then “Big 8” accounting firm, and I’ve 

provided it before to readers in my other blog … and it’s simply this: over a 

3 year period I started with about $35K, and I turned it into about 

$1.4 million … and what makes that pertinent today, is that the same 

principles I used in last night’s EURJPY trade to signals service subscribers, 

is EXACTLY the same from back-in-the-day when I traded Swiss Francs, 

British Pounds, Japanese Yen, and/or SP500 futures from the floor.

Back then, it was a combination of futures and futures options [calls & puts] 

with very near term expiration's, and basically utilizing what’s known in the 

trade biz as a “Christmas tree” positioning algorithm … the concept is very 

simple … “one side is positioned in futures, and the other side is positioned 

opposite via long calls or puts in a ratio” … e.g., long 1 futures & long 2 or 3 

puts, OR short 1 futures & long 2 or 3 calls. It’s important to note here, that 

this strategy makes you LONG GAMMA, not short gamma where the entire 

rest of the world gets destroyed in a fast moving market. Short gamma means 

you want a quiet market, long gamma just the opposite, where the crazier the 

better. Essentially it’s a case of pick your poison … when SHTF via short 

gamma you just get a bullet to the back of the head, whereas when SHTF via 

long gamma, it’s like starving to death … from my perspective, it’s better to 

deal with hunger than a bullet, and history proves my point!

In the trading tutorial for NADEX Call Spreads, I didn’t bring this strategy 

up, but it can be utilized using the same concepts … simply use one call spread 

to be long/short that isn’t close to a ceiling / floor, and thus trades with the 

market up/down, and use a 2X strategy to be long the other side utilizing the 

ceiling / floor as price protection … essentially this is a “synthetic Christmas 

tree strategy". 

What makes the FX crosses of EURJPY & GBPJPY so dangerous to traders, 

is NOT the days when the market goes straight up/down 150+ PIPS … it’s 

when the market goes 50 PIPS up, then 80 PIPS down, then 50 PIPS up, then 

100 PIPS down, before finally rallying 100 PIPS … you get caught up in those 

cross currents of volatility and panic, and you’re gonna have a really bad day. 

The purpose and premise of the “synthetic Christmas tree strategy” is to make 

money on one side, and then let the other side become a “free trade” the rest of 

the day … you can do it on either side of the market, and it’s not a market call 

on direction, it’s a market call on the fact this shit is mostly crazy about 99.9% 

of the time and will reverse like nobody’s business and hurt most traders … we

simply don’t care where it goes, only that it goes somewhere.

When the side of the market makes you money on the “1 lot”, which is the side 

you have most exposure, take profit when the market is hitting a high/low for 

the day, then leave the other side to “ride free” cuz it’s the side protected by the 

floor / ceiling … when the side of the market makes you money with the  

“2 lot”, after you ring the register you have to liquidate immediately the “1 lot” 

cuz it has the most exposure, so there isn’t a free ride on this side.

I can hear the question now, so I’ll answer it … you can use any criteria you 

want for determining which side of the market to do the “Christmas tree” 

… it doesn’t matter … what matters is you definitely ring the register when 

up more than 15% on risk capital from the most exposed side, cuz that leaves 

you with a free trade that more than you know will make some big bucks over 

time. 

Last night I recommended a trade in EURJPY, utilizing the “synthetic 

Christmas tree strategy” I outlined above … I could have chosen either up or 

down, but felt with 2 days in a row down, maybe the market had a slight 

advantage to the upside, although action has been sloppy to be sure … in any 

event, I was wrong on direction, but still made money … directly below the 

trade tickets near the open.

 

click to enlarge

As the market goes lower, thus placing us up about 20% on MAX risk capital 

for the trade, at the time I nailed the bottom of the move right around 124.50, 

before the BOE report. This leaves us still long the 2 lot off the floor in case 

the market rallies later, but for now it’s got no bid at the floor. The trade 

liquidation of the exposed side directly below.

 

click to enlarge

It should be noted, that the margin at NADEX for this trade is higher than 

doing equal floor & ceiling call spreads, simply cuz margin is calculated from 

the MAX loss of the position to the floor or ceiling, whichever is appropriate. 

NADEX computers don’t actually calculate your risk in multi positioned 

trades, only single isolated positions.

Our total max risk in the EURJPY trade was $39 per the 2X1 synthetic 

Christmas tree, assuming the other side expires at the floor for  max loss on 

the 2 lot long position. Our total return was right around 15% after 

commissions. In hindsight, which is always easy, the same position scheme in 

GBPJPY would have worked beautifully as well, but the pricing last night in 

GBPJPY was too high IMHO … as I’ve said before, PIPS matter.

OK, I’m gonna assume the 2 lot long expires on its floor, so nothing else today. 

Onto tomorrow, where I’ll have more trading details about the “synthetic 

Christmas tree strategy” … I’m outta here … until tomorrow mi amigos 

… Onward & Upward!!

Have a great day everybody!

-vegas

OUR NADEX SIGNALS SERVICE IS UP & RUNNING … DAILY 

WTI CRUDE OIL SIGNALS & “VOLATILITY” STRATEGIES 

IN 20 OTHER MARKETS, INCLUDING COMMODITIES, FX, 

& STOCK INDICES! … “what on earth are you waiting for”?