Risk:reward ratio changes in the FTSE

The risk: reward ratio changes in the FTSE as Aug expiry comes to an end and Sept looms large.


Nb. Our comment from the 08/08/2022

Why waste time? Which is exactly the attitude of the FTSE at the moment.

Since our last comment, please see above, where we mentioned it had gone to a lot of effort to stay in bullish territory above its zone and that it was clear all the way up to 7450…it has just powered on up until it hit aforementioned 7450.

During the course of this journey, it has also moved the zone up.

This we see as a natural move, occasioned by the lack of ratio in that huge Y ratio bandwidth that was there a couple of weeks ago, rather than any great bullish manipulation.

To underline this point, below the zone, OK 7050 has gone from Y2 to R1, but otherwise R2, R3 and DR have all remained static.

Admittedly, above the zone, the ratios have slipped, but they were doing that two weeks ago, and anyway, with the huge move in this market this is by and large a natural by-product of this.

So, what next?

Well, 7450 is the new critical level. Now because it is the top boundary of the zone but, previously, it was because it was R1.

Don’t forget at the start of this expiry 7450 was Y2, then became R1, so this is it just retuning to where it came from.

However, the difference now to two weeks ago, is that Wednesday’s intraday high and close was 7445, Thursday’s close was 7448 and Friday’s 7439. All inside the zone.

There is still two weeks to go, but the market is certainly not as aggressive as it was a fortnight ago. There is still some upside, R1 now starting at 7550, but there is also now a lot of downside. Apart from the actual zone of course, the corresponding R1 is all the way down there at 7050, so the risk: reward ratio has changed considerably now, at least for us that is.


Range:            7350  to  7450      

Activity:          Moderate

Type:              Neutral



Nb. Our comment on 08/15/22


And here we are, at the end of the August expiry, and one which certainly has been “one for the bulls”.

We have said this before but, one of the main aims of looking at the hedge ratios, is so that one can determine when the market is out of kilter with reality. When we say reality, what we actually mean, is that the market fails to respond to the futures coming on to the market via the dynamic delta. If this is futures selling, and the market is a willing buyer, then all is good. But and this is a big but, at some stage this appetite, or emotion, will fade, leaving the dynamic delta to take charge.

For us this is where this market is now.

Essentially, it has broken up through its zone, met with the futures selling generated by the minimal Y1 ratio dynamic delta, and simply stalled.

The desire is there (for the bulls) but the appetite just isn’t. At the end of this week the FTSE has added just 60-points (0.81%) whereas the S&P500 has added 135-points (3.26%).

And on top of this you now have the rollover and expiry for the market to contend with.

Furthermore, next up is the September expiry, the third of the “biggies” this year, and so this makes it the second biggest this year by sheer volume. Only the Dec expiry is bigger.

After Wall Street’s performance on Friday most would anticipate the market opening stronger this side of the pond, and as one can see in the table above, the FTSE is right in the middle of its Y1 ratio bandwidth.

So, although the Y1 dynamic delta has up to now, applied the brakes to the bulls’ exuberance, lurking dead ahead is R1 at 7550. This is also already a significant ratio level in the Sept expiry. So, it might get frisky this week but, as we said previously, “the risk: reward ratio has changed considerably now”.


Range:            7450  to  7550      

Activity:          Average

Type:              Bearish


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August 15th, 2022 by