An Options play for 2013

With the FTSE hovering close to 6000 (and most likely about to pop it before the year’s out) but still the “fiscal cliff” worries, the Grexit potential, euro sovereign woes etc all still potentially lurking around the corner, perhaps putting on a so called black swan trade via the options market for 2013 is advisable. We certainly are, to protect our mining trades.

It seems a slim possibility now that the FTSE would trade down at 5000 but, in the markets, never say never. If the last 12 years have taught us anything it’s that anything can (and invariably does!) happen… Oh, and that precisely the time to buy insurance is when you appear not to need it.

Bearing in mind the above and taking into account the chart below that shows numerous occassions when the FTSE has given way to over 1000 point drops, with volatility so low it strikes me that an outright purchase of the June 2013 5200 Puts at 80 looks good value or even a ratio Put Spread of selling twice the amount of the 4800 Puts for a net zero cost and with a view to buying one half back as time value erodes is a good trade.

If you’d like to learn more about options trading in your spread betting then click the image below for one of the very few free option guides.