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Options Blueprint Series [Advanced]: Reverse Time Iron Condors1. Introduction In today’s advanced options trading discussion, we introduce a unique structure—"Reverse Time Iron Condors"—using Corn Futures Options (ZCH2025). This sophisticated strategy leverages options with different expiration dates, allowing traders to position themselves for a potential market move in the mid-term. The Corn market has recently shown signs of slowing momentum, as indicated by technical indicators such as ADX (Average Directional Index) and RSI (Relative Strength Index) applied to ADX. Our analysis shows that RSI applied to ADX is oversold, and RSI is approaching a key crossover signal that could confirm an increase in volatility. Given this setup, the Reverse Diagonal Iron Condor (a.k.a. Reverse Time Iron Condor) structure aligns well with the market’s current conditions over two expiration cycles. CME Product Specs (Corn Futures ZCH2025) Contract Size: 5,000 bushels per contract. Tick Size: 1/4 cent per bushel (0.0025), or $12.50 per tick. Required Margin: USD $1,200 per contract at the time of producing this article. 2. Market Setup & Analysis To understand why the Reverse Time Iron Condor is suitable for Corn Futures right now, let’s delve into the technical picture: ADX Analysis: Corn Futures’ Daily ADX has been dropping, indicating weakening momentum. This signals a period of consolidation, where price volatility remains low. RSI of ADX: By applying the RSI to the ADX values, we notice that ADX is now oversold, suggesting that momentum could soon pick up. RSI Crossover: The RSI is nearing a crossover above its moving average, confirming that a new impulse in momentum would be in the process of potentially occur. This technical picture suggests the market could stay in a low-volatility phase for now but break out in the near future. Based on this technical setup, the strategy we present is to capitalize on the short-term consolidation while preparing for a potential breakout, using the Reverse Diagonal Iron Condor structure. 3. Strategy Breakdown: Reverse Diagonal Iron Condor The Reverse Diagonal Iron Condor is a unique options structure where you sell longer-term options and buy shorter-term options. This setup generates a negative theta position, meaning time decay works slightly against the trader. However, the strategy compensates for this through positive gamma, which accelerates the delta as the underlying market moves, especially during a breakout. This combination allows the position to profit from a sharp move in either direction, with relatively limited cost. For this trade on Corn Futures (ZCH2025), the structure is as follows: Sell 450 Call (21 Feb 2025), Buy 455 Call (27 Dec 2024): This creates a short diagonal call spread, where the February short call decays slowly due to the longer expiration, and the December long call acts as a short-term hedge against an early rise in prices. Sell 410 Put (21 Feb 2025), Buy 405 Put (27 Dec 2024): Similarly, this forms a short diagonal put spread. The February short put is subject to less time decay, while the December long put protects against a sharp downward move before its expiration. Key Mechanics: Time Decay (Theta): Although the trade has negative theta, the impact of time decay is relatively small because the February options decay slowly due to their longer-term expiration. Gamma and Delta: The positive gamma in this position means that if a breakout occurs before the December expiration, the delta will increase significantly, making the trade more sensitive to price changes. This could more than offset the negative theta, allowing the trade to capture large gains from a significant price move. Objective: The goal is for Corn prices to experience an impulsive move (either up or down) before the December 2024 expiration of the long legs, allowing the positive gamma to boost the position’s delta. If this breakout occurs, the potential profits from the price move will likely surpass the small losses due to time decay. The structure is ideal for markets in consolidation that may be on the verge of a volatility surge, as the falling ADX and oversold RSI suggest. This strategy is particularly well-suited for Corn Futures (ZCH2025), given the current technical setup, where a near-term consolidation phase might be followed by an explosive move in either direction. The success of this trade relies on a timely breakout occurring before the December expiration, after which the position may need adjustment to manage risk. 4. Risk Profile at Initial Setup The initial risk profile for this trade reminds us of an Iron Condor risk profile, with the best case being a range-bound corn market between 410 and 450. Important Consideration: This risk profile does not reflect the final outcome because the trade spans two different options cycles. The December options will expire first, which means adjustments may be necessary after that expiration to maintain protection. Note on Options Simulation Tool: It's important to mention that the options simulation tool provided by TradingView is currently still in its beta stage. While it offers useful insights for analyzing and visualizing options strategies, traders should be aware that certain features may be limited, and results might not always reflect all real-world conditions. For a more comprehensive analysis, it is recommended to complement the simulation with other tools such as the Options Strategy Simulator available in the CME Group website. 5. Optional Trade Management After December Expiration Once the December 2024 long options expire, you will face two possible scenarios. In both cases, managing the February 2025 short options is crucial: o Scenario 1: Corn Prices Remain Range-Bound: If Corn futures continue to trade within the 450-410 range, the December long options will expire worthless. In this case, the strategy shifts to managing the February short options, which will benefit from time decay. Monitor the market closely and consider whether to buy new protection for the remaining February short options. o Scenario 2: Corn Prices Break Out: If Corn futures break above 450 or below 410 prior to the December expiration, the February short options could expose the position to significant risk if we allow them to expire. One potential action is to purchase new long options within the range (for example, buy the 445 call and the 415 put using 21 February 2025 expiration). While many other actions could be valid, a common and probably the simplest approach could be to close all legs in time for a likely profit at this moment. 6. Risk Management Effective risk management is essential in any options strategy, especially one as advanced as a Reverse Diagonal Iron Condor. Below are key points to ensure this trade stays within your risk tolerance: o Position Sizing: Given the complexity of this trade, ensure that the size of your position fits within your overall risk management plan. Avoid over-leveraging, as unexpected price movements can lead to significant losses once the December long options expire. o Monitor Key Levels: Keep an eye on the 450 strike (resistance) and 410 strike (support). If Corn breaks these levels early in the trade, consider closing the position or making adjustments. o Volatility Management: The success of this trade hinges on an increase in market momentum. 7. Conclusion The Reverse Diagonal Iron Condor is an advanced options strategy where the long positions have a shorter expiration than the short positions, creating a negative theta position. Instead of benefiting from time decay as in a traditional Iron Condor, this strategy is designed to take advantage of expected volatility increases over time. By selling longer-term options and buying shorter-term options, traders are positioning themselves for a volatility breakout or significant price movement before the near-term options expire. In this setup, time decay has a limited negative impact on the position, but the key advantage lies in the positive gamma. This means that if a breakout occurs, the position’s delta will accelerate, potentially outpacing the slight negative effect of theta. Traders should closely monitor the December expiration, as the success of the trade hinges on the anticipated large move happening before this date. This structure is particularly well-suited for Corn Futures (ZCH2025), given the falling ADX and RSI, which suggest a potential momentum shift. The strategy is designed to benefit from a significant price move with limited cost, assuming the breakout occurs within the timeframe of the December long options. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
CBOT:ZCH2025Education
by traddictiv
Options Blueprint Series: Bear Put Diagonal Fly on Euro FuturesIntroduction Euro FX EUR/USD Futures are a key instrument in the futures market, allowing traders to speculate on the future value of the Euro against the US Dollar. Trading Euro FX EUR/USD Futures provides exposure to the currency markets, enabling traders to hedge risk or capitalize on market movements. Key Contract Specifications: Contract Size: 125,000€ Tick Size: 0.00005 Tick Value: $6.25 Margin Requirements: Approximately $2,100 (varies by broker and market conditions and changes through time) These contract specs are crucial for understanding the potential profit and loss scenarios when trading Euro Futures. The tick size and value help determine the smallest price movement and its monetary impact, while the margins indicate the amount of capital required to initiate a position. Strategy Explanation The Bear Put Diagonal Fly is an advanced options strategy designed to profit from a bearish market outlook. This strategy involves buying and selling put options with different expiration dates and strike prices, creating a diagonal spread. Bear Put Diagonal Fly Breakdown: Buy 1 Put (longer-term expiration): This long put provides downside protection over a longer period, benefiting from a significant decline in the underlying asset. Sell 1 Put (intermediate-term expiration): This short put helps to offset the cost of the long put, generating premium income and partially financing the trade. Buy 1 Put (shorter-term expiration): This additional long put offers further downside protection, particularly for a shorter duration, enhancing the overall bearish exposure. Purpose of the Strategy: The Bear Put Diagonal Fly is structured to take advantage of a declining market with specific price movements over different time frames. The staggered expiration dates allow the trader to benefit from time decay and volatility changes. Advantages: Cost Reduction: The premium received from selling the put helps to reduce the overall cost. Enhanced Bearish Exposure: The additional shorter-term put provides extra exposure. Flexibility: The strategy can be adjusted or rolled over as market conditions change. Potential Risks: Time Decay: If the market does not move as expected, the long puts may lose value due to time decay. Volatility Risk: Changes in market volatility can impact the value of the options. Application on Euro Futures To apply the Bear Put Diagonal Fly strategy on Euro Futures, careful selection of strike prices and expiration dates is crucial. This strategy involves three options positions with different expirations to optimize the potential profit from a bearish market move. Selecting Strike Prices and Expiration Dates: Long Put (longer term): Choose a strike price above the current market price of Euro Futures to benefit from a significant decline. Short Put (intermediate term): Select a strike price closer to the market price to maximize premium income while reducing the overall cost of the strategy. Long Put (shorter term): Pick a strike price below the market price to provide additional bearish exposure. Why This Strategy is Suitable for Euro Futures: Market Conditions: As seen on the upper chart, the current market outlook for the Euro suggests potential downside due to technical factors, making a bearish strategy appropriate. Volatility: Euro Futures often experience significant price movements, which can be advantageous for the Bear Put Diagonal Fly strategy, as it thrives on volatility. Flexibility: The staggered expiration dates allow for adjustments and management of the trade over time, accommodating changing market conditions. Futures (underlying using the 6E1! continuous ticker symbol) Entry, Target, and Stop-Loss Prices: Short Entry: 1.09000 Target: 1.08200 Stop-Loss: 1.09400 Options Trade Setup (using Futures September cycle with 6EU2024 ticker symbol): The Bear Put Diagonal Fly on Euro Futures involves a structured approach to setting up the trade. Here’s a step-by-step guide to executing this strategy: 1. Buy 1 Put (Sep-6 expiration): Strike Price: 1.095 Premium Paid: 0.0102 (or $1,275 per contract) 2. Sell 1 Put (Aug-23 expiration): Strike Price: 1.09 Premium Received: 0.0061 (or $762.5 per contract) 3. Buy 1 Put (Aug-9 expiration): Strike Price: 1.085 Premium Paid: 0.0021 (or $262.5 per contract) Risk Calculation: Net Cost = ($1,275 + $262.5) - $762.5 = $775 Risk: The initial net cost of the strategy. Risk = $775 Trade and Risk Management Effective risk management is essential when trading options strategies like the Bear Put Diagonal Fly on Euro Futures. Effectively managing the Bear Put Diagonal Fly on Euro Futures is crucial to optimize potential profits and mitigate risks. Here are common guidelines for managing this options strategy: Using Stop-Loss Orders: In the Bear Put Diagonal Fly strategy, setting a stop-loss at 1.0940 ensures that if Euro Futures move against the expected direction, the losses are contained. Avoiding Undefined Risk Exposure: The Bear Put Diagonal Fly is a defined risk strategy, meaning the maximum loss is known upfront and limited to the initial net cost. Precise Entries and Exits: Timing the Market: Entering and exiting trades at the right time is crucial. Using technical analysis tools such as UFO Support or Resistance levels can help identify optimal entry and exit points. Monitor Time Decay: Keep a close eye on how the time decay (theta) impacts the value of the options. As the short put approaches expiration, assess whether to roll it to a later date or let it expire. Volatility Changes: Changes in market volatility can affect the strategy’s profitability. Rolling Options: If the market moves unfavorably, rolling the options to different strike prices or expiration dates can help manage risk and maintain the strategy’s viability. Regular Check-ins: Review the position regularly to ensure it aligns with the expected market movement. Adjust if the market conditions change or if the position starts to deviate from the initial plan. Profit Targets: Set predefined profit targets and consider taking profits when these targets are reached. Exit Strategies: Have a clear exit plan for different scenarios, at least for when the stop-loss or target is hit. By implementing robust risk management practices, traders can enhance their ability to manage potential losses and improve the overall effectiveness of their trading strategies. Managing the Bear Put Diagonal Fly requires active monitoring and the flexibility to adjust the positions as market conditions evolve. This proactive approach helps in maximizing potential returns while mitigating risks. Conclusion The Bear Put Diagonal Fly is an advanced options strategy tailored for a bearish outlook on Euro Futures. By strategically selecting options with different expiration dates and strike prices, this strategy offers a cost-effective way to capitalize on anticipated declines in the Euro while managing risk. Summary of the Bear Put Diagonal Fly Strategy: Cost Reduction: The short put helps to offset the cost of the long puts, making the strategy more affordable. Enhanced Bearish Exposure: The additional long put provides extra downside protection. Flexibility: The staggered expiration dates allow for adjustments and trade management over time. Why This Strategy Could Be Beneficial: The current market conditions suggest potential downside for Euro Futures, making a bearish strategy like the Bear Put Diagonal Fly appropriate. The defined risk nature of the strategy ensures that maximum potential losses are known upfront. Effective trade and risk management techniques can further enhance the strategy’s performance and mitigate potential risks. By understanding the mechanics of the Bear Put Diagonal Fly and applying it to Euro Futures, traders can leverage this advanced options strategy to navigate bearish market conditions with greater confidence and precision. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
CME:6E1!Education
by traddictiv
Options Blueprint Series: All-Time High Christmas Tree SpreadIntroduction As Nasdaq futures continue to show bullish momentum, traders are eyeing the potential for a new all-time high. With market conditions favoring upward movements, leveraging options strategies that maximize upside potential becomes crucial. One such strategy is the Christmas Tree Spread, traditionally used to limit risk while maintaining profit potential. However, in this article, we will explore a modified version where all strikes are Out-Of-The-Money (OTM), creating a setup that profit to the upside no matter how high Nasdaq goes. This approach aligns perfectly with the optimistic outlook for Nasdaq futures and sets the stage for potential gains. Strategy Overview The Christmas Tree Spread is a versatile options strategy that can be tailored to suit various market conditions. Traditionally, when using calls, it involves buying one call at a lower strike price and selling three calls at higher strike prices and buying two more calls at even higher strike prices, creating a balanced risk-reward profile. In this modified version, we adjust the strikes to all be Out-Of-The-Money (OTM), enhancing the bullish nature of the strategy. For this setup, while Nasdaq Futures are trading at 19,982.75, we select the following strike prices for Nasdaq futures options with an expiration date of September 2024: Buy one 20000 call Sell three 21500 calls Buy two 21750 calls By choosing these strikes, we position ourselves to benefit from any substantial upward movement in Nasdaq futures. All strikes being OTM ensures that the breakeven point is set above the current price, effectively betting on a new all-time high for Nasdaq. This configuration guarantees profit to the upside, regardless of how high Nasdaq futures rise. Strategy Rationale The rationale behind selecting an all OTM strike setup for the Christmas Tree Spread lies in the current bullish outlook for Nasdaq futures. As markets exhibit strong upward trends, the potential for Nasdaq to achieve new all-time highs becomes increasingly plausible. This strategy aims to capitalize on such a possible bullish scenario. Why OTM Strikes? Lower Cost: OTM options are generally cheaper, reducing the initial cost of setting up the spread. Increased Profit Potential: Since all strikes are set above the current market price, the profit potential is maximized for any substantial upward movement. Risk Mitigation: The structure of the spread inherently limits risk, as losses are capped while allowing for upside gains. Breakeven Point: The breakeven point for this modified Christmas Tree Spread is calculated based on the premiums paid and received for the options. Given the strikes selected (20000, 21500, and 21750), the breakeven point is above the current E-mini Nasdaq-100 futures price (20,465.62), aligning with the expectation of a new all-time high. Detailed Setup and Example Trade Setup Details: Buy one 20000: This is the lower strike option, purchased to gain exposure to significant upside potential. Sell three 21500 calls: These are the middle strike options, sold to offset the cost of the purchased call and to create a spread. Buy two 21750 calls: These are the higher strike options, purchased to cap the potential loss from the sold calls and complete the spread. Premiums Involved: Assuming the following hypothetical premiums: 20000 call: 683.38 points 21500 calls: 145.42 each (436.26 total for three) 21750 calls: 109.25 each (218.5 total for two) Net Cost: Total cost of buying calls: 683.38 (20000 call) + 218.5 (21750 calls) = 901.88 Total premium received from selling calls: 436.26 (21500 calls) Net cost: 901.88 – 436.26 = 465.62 Risk Profile and Reward-to-Risk Ratio: Maximum Risk: The maximum risk is limited to the net cost of the trade, which is 465.62 points. Maximum Reward: The maximum reward would take place at 21500 on expiration and is 1034.39 points. The structure ensures 534.39 points of profit as the index potentially climbs higher. Breakeven Point: The breakeven point is the initial cost added to the lower strike price, which is 20000 + 465.62= 20,465.62. Trade Scenario: To illustrate, let's consider the potential outcomes at expiration in September 2024: If Nasdaq is below 20000: All options expire worthless, and the net loss is the initial cost: 465.61 points. If Nasdaq is at 21500: The 20000 call gains 1500, the 21500 calls expire worthless, and the 21750 calls expire worthless. Net gain = 1500 - initial cost = 1034.39 points. If Nasdaq is at or above 21750: The 20000 call gains 1500, two of the 21500 calls each lose 250, and the 21750 calls expire worthless. Net gain = $1500 - 750 (total loss from sold calls) – 465.61 (initial cost) = 534.39 points. Risk Management Risk management is a crucial aspect of any trading strategy, especially when dealing with options. For the modified Christmas Tree Spread strategy on E-mini Nasdaq-100 futures options, several risk management techniques can be employed to ensure that potential losses are minimized and profits are protected. Use of Stop-Loss Orders: Stop-Loss: Implementing stop-loss orders can help limit losses if the market does not move as expected. Setting a stop-loss at a certain percentage below the purchase price can automatically exit the position, reducing the risk of holding losing trades. Hedging Techniques: Protective Puts: Purchasing protective puts can provide additional downside protection if the market moves significantly against the position. This can be considered if there are signs of a strong bearish reversal. Spreading Risk: Diversifying the strike prices or expiration dates can spread the risk and reduce the impact of a single adverse market movement. However, this needs to be balanced with the strategy's intent and market conditions. Avoiding Undefined Risk Exposure: Capped Risk: The strategy inherently caps risk by buying the 21750 calls, which limits the maximum loss from the sold 21500 calls. Ensuring that all components of the strategy are correctly implemented and monitored helps avoid unexpected risks. Regular Monitoring: Regularly reviewing the position and market conditions ensures that the strategy remains aligned with the trader’s expectations and risk tolerance. Adjustments can be made as necessary to manage exposure. By incorporating these risk management techniques, traders can enhance the robustness of the modified Christmas Tree Spread strategy, ensuring that potential losses are minimized while maximizing the chances of achieving the desired profit. Application with Micro E-mini Nasdaq Options The modified Christmas Tree Spread strategy can also be effectively applied to Micro E-mini Nasdaq futures options. Micro E-mini options offer the same strategic benefits but with smaller contract sizes (10 times less), making them more accessible for traders with smaller accounts or those looking to manage risk more precisely. Advantages of Using Micro E-mini Options: Lower Capital Requirement: The smaller contract size of Micro E-mini options means a lower initial cost, making it easier for more traders to participate. Fine-Tuned Risk Management: Smaller positions allow for more precise control over risk, as traders can scale in and out of positions more easily. Similar Profit Potential: While the absolute profit may be smaller compared to standard E-mini options, the percentage returns can be similar, providing an effective way to capture upside movements in E-mini Nasdaq-100 futures. Comparison of Standard E-mini vs. Micro E-mini Options: Standard E-mini options have larger contract sizes and are typically used by traders with more significant capital to invest. In contrast, Micro E-mini options offer smaller contract sizes, making them ideal for traders with smaller accounts or those who prefer to manage risk more precisely. Both options provide the same strategic advantages but cater to different levels of investment and risk management needs. Using Micro E-mini Nasdaq futures options provides traders with the same strategic advantage of capturing significant upside potential while managing risk effectively, aligning well with the bullish market outlook for E-mini Nasdaq-100 futures. Conclusion The modified Christmas Tree Spread strategy offers a robust and flexible approach to capitalizing on the bullish momentum of E-mini Nasdaq-100 futures. By strategically placing all strikes Out-Of-The-Money and targeting a new all-time high, this setup ensures profit potential to the upside, no matter how high Nasdaq climbs. With proper risk management and precise execution, traders can maximize their gains while minimizing risks. Whether using standard E-mini options or Micro E-mini options, this strategy provides a powerful tool for navigating the current market conditions and positioning for future growth. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
CME_MINI:NQU2024Education
by traddictiv
Options Blueprint Series: Swap Strategies for High VolatilityIntroduction CME Group Gold Futures have always been a cornerstone in the commodities market, offering investors and traders a way to hedge against economic uncertainties and inflation. With the current market environment exhibiting heightened volatility, traders are looking for strategies to capitalize on these fluctuations. One such strategy is the Straddle Swap, which is particularly effective in high volatility scenarios. By utilizing the Straddle Swap strategy on Gold Futures, traders can potentially benefit from price swings driven by news events, economic data releases, and other market-moving occurrences. Strategy Explanation The Straddle Swap strategy is designed to capitalize on high volatility by leveraging options with different expirations. Here’s a detailed breakdown of how this strategy works: Components of the Straddle Swap: 1. Buy one call option (longer expiration) This long call option benefits from upward price movements in Gold Futures. 2. Sell one call option (shorter expiration) This short call option generates premium income, which offsets the cost of the long call option. As it has a shorter expiration, it benefits from faster time decay. 3. Buy one put option (longer expiration) This long put option benefits from downward price movements in Gold Futures. 4. Sell one put option (shorter expiration) This short put option generates premium income, which offsets the cost of the long put option. It also benefits from faster time decay due to its shorter expiration. Rationale for Different Expirations: Longer Expirations: The options with more days to expiration provide a longer timeframe to capture significant price movements, whether upward or downward. Shorter Expirations: The options with less days to expiration decay more quickly, providing premium income that reduces the overall cost of the strategy. This helps mitigate the effects of time decay on the longer-dated options. Market Analysis Using TradingView Charts: To effectively implement the Straddle Swap strategy, it’s crucial to analyze the current market conditions of Gold Futures using TradingView charts. This analysis will help identify optimal entry and exit points based on volatility and price trends. The current price action of Gold Futures along with key volatility indicators. Recent data shows that the 1-month, 2-month, and 3-month Historical Volatilities have all been on the rise, confirming a high volatility scenario. Application to Gold Futures Let’s apply the Straddle Swap strategy to Gold Futures given the current market conditions. Identifying Optimal Entry Points: Call Options: Buy one call option with a 100-day expiration (Sep-25 2024) at a strike price of 2370 @ 64.5. Sell one call option with a 71-day expiration (Aug-27 2024) at the same strike price of 2370 @ 53.4. Put Options: Buy one put option with a 100-day expiration (Sep-25 2024) at a strike price of 2350 @ 63.4. Sell one put option with a 71-day expiration (Aug-27 2024) at the same strike price of $2350 @ 52.5. Target Prices: Based on the relevant UFO support and resistance levels, set target prices for potential profit scenarios: Upper side, target price: 2455. For put options, target price: 2260. Potential Profit and Loss Scenarios: Scenario 1: Significant Upward Movement If Gold Futures rise sharply above 2370 within 100 days, the long call option will generate a potentially substantial profit. The short call option will expire in 71 days, limiting potential losses. Scenario 2: Significant Downward Movement If Gold Futures fall sharply below 2350 within 100 days, the long put option will generate a potentially substantial profit. The short put option will expire in 71 days, limiting potential losses. Scenario 3: Minimal Movement If Gold Futures remain relatively stable, the premiums collected from the short options (71-day expiration) will offset some of the cost of the long options (100-day expiration), minimizing overall losses. Further options could be sold against the long 2350 call and long 2350 put once the shorter expiration options have expired. Specific Action Plan: 1. Initiate the Straddle Swap Strategy: Enter the positions as outlined above following your trading plan, ensuring to buy and sell the options at the desired strike prices and expirations. 2. Monitor Market Conditions: Continuously monitor Gold Futures prices and volatility indicators. Adjust or close the strategy if necessary based on significant market changes. 3. Manage Positions: Use stop-loss orders to limit potential losses. If the market moves favorably, consider exiting the positions at the target prices to lock in profits. 4. Reevaluate Periodically: Periodically reevaluate the positions as the options approach their expiration dates. Make any necessary adjustments to the strategy based on updated market conditions and volatility. By following this type of trade plan, traders can effectively implement the Straddle Swap strategy, taking advantage of high volatility in Gold Futures while managing risk through careful monitoring and the use of stop-loss orders. Risk Management Effective risk management is crucial for success in options trading, particularly when employing strategies like the Straddle Swap. Here, we will discuss the importance of risk management, key techniques, and best practices to ensure that traders can mitigate potential losses and protect their capital. Importance of Risk Management: Minimizing Losses: Trading inherently involves risk. Effective risk management helps minimize potential losses, ensuring that a single adverse move does not significantly impact the trader’s overall portfolio. Preserving Capital: By managing risk, traders can preserve their capital, allowing them to stay in the market longer and capitalize on future opportunities. Enhancing Profitability: Proper risk management allows traders to optimize their strategies, potentially increasing profitability by avoiding unnecessary losses. Key Risk Management Techniques: 1. Stop-Loss Orders: Implementing stop-loss orders helps limit potential losses by automatically closing a position if the market moves against it. For the Straddle Swap strategy, set stop-loss orders for the long call and put options to exit positions if prices reach predetermined levels where losses would exceed the desired trade risk set by the trader. 2. Hedging: Use hedging techniques to protect positions from adverse market movements. This can involve purchasing protective options or futures contracts. Hedging provides an additional layer of security, ensuring that losses in one position are offset by gains in another. 3. Avoiding Undefined Risk Exposure: Ensure that all positions have defined risk parameters. Avoid strategies that can result in unlimited losses. The Straddle Swap strategy inherently has limited risk due to the offsetting nature of the long and short options. 4. Precision in Entries and Exits: Timing is crucial in options trading. Ensure precise entry and exit points to maximize potential gains and minimize losses. Use technical analysis key price levels such as UFO support and resistance prices, and volatility indicators to identify optimal entry and exit points. 5. Regular Monitoring and Adjustment: Continuously monitor market conditions and the performance of open positions. Be prepared to adjust the strategy based on changing market dynamics, such as shifts in volatility or unexpected news events. Additional Risk Management Practices: Diversification: Spread risk across multiple positions and asset classes to reduce the impact of any single trade. Other liquid options markets could be WTI Crude Oil Futures; Agricultural products such as Wheat Futures, Corn Futures, or Soybean Futures; Index Futures such as the E-mini S&P 500 Futures; and even Bond and Treasury Futures such as the 10-Year Note or the 30-Year Bond Futures. Position Sizing: Carefully determine the size of each position based on the trader’s overall portfolio and risk tolerance. Education and Research: Stay informed about market conditions, economic indicators, and trading strategies to make well-informed decisions. By incorporating these risk management techniques, traders can effectively navigate the complexities of options trading and protect their investments. Ensuring more precision with entries and exits, using stop-loss orders, and implementing hedging strategies are essential practices that contribute to long-term trading success. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
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COMEX:GCV2024Education
by traddictiv
10
Options Blueprint Series: Cost Efficient Skip Strike ButterflyUnderstanding Skip Strike Butterfly The Skip Strike Butterfly strategy is a unique and cost-effective options trading strategy that builds upon the traditional butterfly spread. This strategy involves buying and selling options at different strike prices to create a position with limited risk and potential for profit. Unlike the traditional butterfly spread, the Skip Strike Butterfly "skips" a strike price, which reduces the overall cost of the trade while maintaining a similar payoff profile. Benefits: Cost Efficiency: Lower upfront cost compared to traditional butterfly spreads. Limited Risk: The maximum risk is limited to the net premium paid for the strategy. Profit Potential: Potential for significant returns if the underlying asset moves within the expected range. Understanding the mechanics of the Skip Strike Butterfly strategy can provide traders with a versatile tool for navigating market conditions when trading Corn Futures. This strategy allows traders to participate in market movements with a well-defined risk and reward profile, making it an attractive option for those looking to optimize their trading costs. Strategy Setup Setting up the Skip Strike Butterfly strategy for Corn Futures involves selecting the appropriate strike prices and expiration dates. Here, we detail the steps to configure this strategy effectively. Steps to Set Up the Skip Strike Butterfly: 1. Select the Expiration Date: Choose an expiration date that aligns with your market outlook and trading plan. Ensure you select an expiration that provides enough time for the expected price movement to occur. 2. Determine the Strike Prices: Identify the current price of Corn Futures. Typically, use calls for bullish setups and puts for bearish setups. Buy one in-the-money (ITM) option. Sell two at-the-money (OTM) options using a strike located near to where the trade target price is. Skip one or multiple strikes and buy one further out-of-the-money (OTM) option. 3. Calculate the Cost: Calculate the net premium paid for the strategy by considering the premiums of each option involved. The net cost is generally lower due to the skipped strike price. 4. Establish the Payoff Structure: The maximum profit is realized if the price of Corn Futures closes at the middle strike at expiration. The maximum loss is limited to the net premium paid for the strategy. Application to Corn Futures Analyzing the current market conditions for Corn Futures is crucial before implementing the Skip Strike Butterfly strategy. Let's examine the market and set up a trade based on recent data and trends. Market Analysis: Current Price: Corn Futures are trading at 456'6 per contract. Market Trend: The market has shown moderate volatility with a tendency to hover around the 450 level. Technicals: Recently, buy UnFilled Orders (UFOs) have formed around the 450 level, indicating strong buying interest and potential support at this price. On the other hand, sell UFOs are positioned much higher, around the 490 level, suggesting limited selling pressure in the immediate range and opening the door for a directional move with a potentially strong reward-to-risk ratio. Setting Up the Trade: Based on our analysis, we will implement the Skip Strike Butterfly strategy as follows: Current Price of Corn Futures: 456'6 Expiration Date: 74 days from today. Strike Prices and Premiums: Buy 1 ITM Call: Strike Price 450, Premium 27.25 Sell 2 ATM Calls: Strike Price 480, Premium 16 each Buy 1 OTM Call: Strike Price 540, Premium 6 Net Premium Paid: 27.25 (buy) - 32 (sell) + 6 (buy) = 1.25 points = $62.5 (Point Value is $50/point) Source: Options chain available at www.tradingview.com Trade Execution: Entry Price: The trade is entered at 1.25 points, making it highly cost-efficient. Target Price: The optimal scenario is for Corn Futures to close at 480 at expiration, where the maximum profit is realized. Break-Even Points: Calculate the break-even points to ensure clarity on potential losses or gains. For this setup, the break-even points are 451.25 and 508.75. Risk: In the worst-case scenario, this trade could incur a loss of 31.25 points if Corn Futures surpasses the upper break-even point. Conversely, a minor loss of 1.25 points would occur if Corn Futures falls below the lower break-even point. Source: Risk profile graph available at www.tradingview.com Risk Management Risk management is a critical aspect of any trading strategy, and it is especially important when trading options like the Skip Strike Butterfly. Effective risk management helps protect against unexpected market movements and ensures that losses are minimized while maximizing potential gains. Importance of Risk Management: Limit Losses: By setting clear stop-loss levels, traders can limit the amount of capital at risk and prevent large losses. Preserve Capital: Protecting trading capital is essential for long-term success. Effective risk management allows traders to stay in the game even after a series of losing trades. Emotional Control: Having a risk management plan helps traders stick to their strategy and avoid emotional decisions driven by market volatility. Maximize Gains: Proper risk management enables traders to capitalize on profitable opportunities while keeping losses in check. Techniques for Managing Risk with Skip Strike Butterfly: 1. Stop-Loss Orders: Set stop-loss orders at predetermined price levels to automatically exit the trade if the market moves against you. 2. Position Sizing: Only allocate a small percentage of your trading capital to any single trade. This helps to mitigate the impact of any one trade on your overall portfolio. 3. Diversification: Diversify your trading strategies and instruments to spread risk across different markets and reduce the impact of adverse movements in any one asset. 4. Hedging: Use other options strategies to hedge your positions. For example, buying protective puts can limit downside risk if the market moves significantly against your position. 5. Regular Monitoring: Continuously monitor the market and your positions. Be prepared to adjust your strategy or exit the trade if market conditions change. Conclusion The Skip Strike Butterfly strategy offers a cost-efficient and flexible approach for trading Corn Futures. By strategically setting up options at different strike prices while skipping an intermediate strike, traders can reduce the cost of the trade while maintaining a similar payoff structure to a traditional butterfly spread. This strategy is particularly useful in markets exhibiting limited price movements, making it ideal for the current conditions in Corn Futures. Key Takeaways: Cost Efficiency: The Skip Strike Butterfly reduces the upfront cost of entering a trade, providing a significant advantage over traditional butterfly spreads. Limited Risk: With a well-defined risk profile, this strategy ensures that losses are capped at the net premium paid. Profit Potential: Although the maximum profit is achieved if the underlying asset closes at the middle strike price, the strategy still offers substantial profit opportunities within a specific price range. Risk Management: Implementing robust risk management techniques is essential for success. Utilizing stop-loss orders, managing position sizes, diversifying strategies, and regular market monitoring can help protect trading capital and maximize gains. When trading options and employing strategies like the Skip Strike Butterfly, it is crucial to stay disciplined and adhere to your trading plan. Always ensure that your risk management measures are in place to navigate market uncertainties effectively. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
CBOT:ZC2!Education
by traddictiv
Option TradingOption Trading work based on a contract that gives the buyer the right to buy or sell a certain asset, at a predetermined price (strike price) within a certain time period. A very simple task, but is there a clear technical analysis method that can provide consecutive wins? This post is not trading advice, just a statistical hypothesis test. I will try in 100 candles, and stop if the win rate is below 70% If you are an options trader, or are interested in learning the system I use, please follow this post.
BITFINEX:ETHUSDEducation
by AzrulAzir
Why Options Are DangerousIn today’s article, I want to answer a few questions about why options can be dangerous. What are the risks of trading options? Are puts or calls riskier? Why is option selling risky? We’ll also talk about the safest options trading strategy. So let’s get started and let’s jump right in. Buying Calls & Puts First of all, you need to understand that there are different types of options. There are call options and put options. So calls versus puts, which one is riskier? Some people think that trading puts are riskier, while some people might think that trading calls are riskier, but this is not the case at all. The key question is that you should ask yourself is, are you BUYING options or are you SELLING options? There’s a huge difference between buying and selling, as well as different levels of risk involved between the two. So when you’re buying options, the maximum amount you can lose is the premium you paid. So let talk about a very specific example. Let’s look at a trade I took with TSLA and let’s say that we want to trade a call. So let’s maybe say a 700 call and right now the price is $700. What is the maximum that you can lose? Let’s say that we are bullish on Tesla and we believe that Tesla might go above $750, and we want to buy a call with a strike price of 750. So a 750 strike call expiring next week costs around $1.70 (at the time of writing this article on March 19th, 2021). Now options come in 100 packs, so this means that you’re paying $170 for this option. So in this case, if TSLA does not go above 170 by next Friday, you would lose the $170. So this is very easy, the maximum amount that you can lose is the premium that you paid. On the other hand, you are bearish on Tesla. You believe that it might actually go down to $560 so you’re thinking about a put option with a strike price of 560 that expires next week. A put with a 560 strike price expiring next week is $4.50 so a little bit more, pricier here. Again, since options come in 100 packs, this means that your total risk here is $450 per option traded. It’s the same risk here because it doesn’t really matter whether you’re buying calls or you’re buying puts. The maximum amount that you can lose is the premium. Now, on the other hand, there are SELLING options, and when you’re selling options, this is when your risk is almost unlimited. When you’re buying options, and let’s just say you want to buy a call, this means that you want the stock to go up. So going back to our TSLA example, if we would buy a call 750, that it is expiring next week for $170, if Tesla goes above 750, we make money. If Tesla goes below 750 or stays at 750, we lose the premium or $170. So not really a big deal. Now, how much money could we make on this one? Well, if we buy a call for 750, we have the right to buy 100 shares of Tesla for $750. So let’s say that Tesla closes at $800. So in this case, our profit is $800, minus the $750 that we bought Tesla for, which is $50 per share. Since options come in 100 packs, this means that we would make $5,000 in profits. This is why people love trading options. Because if you think about it, we’re risking $170 and can potentially make $5,000 if Tesla would go up to $800. Now, let’s quickly do an example here for buying a put. So buying a put and in this case, you want the stock to go down. Using our example for TSLA again, we will buy a put with the strike price of 560 for $4.50. So our total risk here is $450. So now if Tesla goes below $560, the strike price here, we make money. Now, if Tesla stays above 560, we lose the premium. But that is the maximum that we can lose. So even if Tesla rallies right now to 800, we would only lose $450. So that is pretty cool, right? Let’s say Tesla goes to $500. So we were able to sell the shares for $560, now we can buy it back for 500. So this would be $60 per share. Since one option equals 100 shares, it means that we would make $6,000 in profits. So as you can see, with options, you can benefit from a stock going up, as well as a stock going down, and the really cool thing is that you can risk a little to make a whole lot. Now, here’s the challenge with this. If you buy a call, you only make money if TSLA is really going above $750. So if it stays below, that’s not enough for the buyer of an option to make money. If Tesla goes sideways well, same here, right? Then you not only won’t benefit from it, but you also lose the premium. If Tesla goes down, you also lose the premium. So if you think about it, there are actually three ways how you can lose money and only one way how you can make money, and this is if Tesla really shoots up. This is why many people, including myself, are interested in SELLING options. Selling Calls & Puts What are the pros of selling options? The first pro is that you don’t need to be right about the direction of a stock to make money. Here is an example I’m in right now (at the time of this writing on March 19th, 2021) with LL Lumber Liquidators. So right here, Lumber Liquidators, I actually sold a put with a strike price of 22. When does the buyer of a put make money? Well, the buyer of a put makes money if it goes below $22. For me, the seller of a put, I make money if Lumber Liquidators goes up, it goes sideways, or it goes down. It can go down all the way to 22. This is a drop of a little over 10%. So if you think about it, if LL can go down by 10% and I am still making money and this is why again, this is why selling options is so fascinating. So you don’t need to be right about the direction and you can keep the premium. So here’s the deal, the premium that you receive is exactly what the buyer is giving you. So the premium is rather small, right? So the cons are the premium is rather small, and this is where your risk is almost unlimited. So back to our example here with Lumber Liquidators. I sold a 45 of the 22 puts, and I received $0.20 per share, so $20 per put option. $20 multiplied by the 45 options means that I’m making $900. So this is the premium that I receive. However, here’s the deal. The buyer of a put has the right to sell 100 shares at the strike price. So what does it mean for me? So the seller, which is me, has to buy LL at $22, and again, this is where one option means 100 shares. So for me here, since I’m having 45 options, this means that I would have to buy 4,500 shares. Because this is where we get to the risks of this strategy here. Now, again, Lumber Liquidators can drop more than 10% and I will be just fine. But what happens if it drops below, let’s say to $20 from $22. OK? So I would have to buy Lumber Liquidators at $22, and therefore I would lose $2 per share. Here, in this case, I have 4,500 shares times $2, this means that I would lose $9,000. Now you get the idea of why selling options is fairly risky, because I’m receiving $900, but if it only goes down by $2, I’m already losing $9,000. But what if it gets worse? What if LL drops to, let’s say, $15, right? Again, I have to buy LL at 22, so I would lose $22 minus $15, $7 per share. Since I have 4,500 shares, time $7, this is where I would lose $31,500. OK. So as you can see, it is super risky if you don’t know what you’re doing. Now, I have been doing this for a long time here, selling premium, and I’ve been doing really, really well. Analyzing Risk With RIDE Let talk about a particular trade that I made with RIDE . I sold the 21.50 put and RIDE dropped. I sold 47 contracts, 47 contracts, which means that I own 4,700 shares at a price of 21.50. RIDE right now (March 19th, 2021) is trading at $13.50. So right now, RIDE is at 13.50. So this means that I lose (21.50, minus 13.50) $8. So I’m losing $8 per share and I’m having 4,700 shares, bringing me down to a total of $37,600. Now, let’s talk about it. How much money did I make selling premium on RIDE? Just on RIDE here. I sold the puts initially, then I sold calls, I sold calls, and I just sold a few more puts. In total on RIDE, thus far, I collected $4,935 in premium, but I also have an unrealized loss of $37,600. So it’s super important that you understand that there is risk involved. Now I know my way out of this. I know how I can trade my way out of this if needed. So I collected $4,900, but right now I’m down that amount. However, this means that my net loss is if I would close it right now, which I’m not intending to do, would be $37,000 minus the $4,935, let’s just say $5,000 to make the math easy, is $32,600. That would be a real loss. This is why it’s super important that you understand the risks when you’re trading options. Safest Options Trading Strategy Now, one of the questions that I receive all the time is, “what is the safest options trading strategy?” The safest options trading strategy is covered calls, and here’s why. When you are trading covered calls, it means you own the stock, and now you are selling calls against it. So what does it mean when you are selling calls? When you are selling calls, it means you have to sell the stock at a certain price. Back to my example with RIDE I own 4,700 shares, and I own those at $21.50. So this is where if I sell calls at 22.50, so this means that I have to sell RIDE shares at $22.50. So how much money do I make? So I bought at $21.50, and I sell at $22.50, so this means that I’m making a dollar profit, $1 profit per share. And since I have 4,700 shares I would make $4,700 plus the premium I receive for selling the call. OK. So this is in addition, and therefore, covered calls are by far the safest options trading strategy. The only way how you can lose with this strategy is when the stock goes down. This is where you already own the stock, and therefore, if you want to sell calls against it, it is the safest option trading strategy, at least based on my experience and my opinion.
REducation
by rockwelltrading
1
When To Take Profits on Options I’m Markus Heitkoetter and I’ve been an active trader for over 20 years. I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails. They start trading and realize it doesn’t work this way. The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically. Real money…real trades. Options trading is really fascinating, and it’s a great way to make money, and I think it is very important to know when to take profits, especially if you like trading The Wheel as I do. So the question is, when should you take profits when trading options? How exactly do you figure this out, is there a formula for it? In this article, I’ll share some guidelines for how and when you should take profits on an option trade. We will answer the question of whether you should let options expire or take profits early. I will show you some very specific examples of two trades that I have going on right now (at the time of this writing on March 17th, 2021). One of them, I took profits today, and the other one I’m still holding on and I will show you exactly why. ]How To Calculate Profits On Options Firstly, let’s talk about how to calculate profits on options. In order to address this, there are two types of options traders. One type of options trader are ones that are buying options, and the other, which I feel is very lucrative, and this is what I’ve been doing for a long time, is selling options and collecting premium. I want to actually talk about selling options and receiving premium, because this is, as I said, what I’ve been focusing on recently with trading The Wheel Strategy. My year-to-date profits on this account so far are more than $54,000 selling premium on options, and I’ll show you exactly how to do this. So when selling options, you’re receiving premium, and for me, the most important metric here is the so-called premium per day or PPD. MARA Example The first example that I want to give you is my position with MARA. Looking over my transactions with MARA over the last 30 days. I sold puts at a strike price of 20, and for this, I received $0.28 in premium per option that I sold. Now options come in 100 packs, so this means that per option I made $28. Now, in this specific example, I sold 50 options total, so this means that I’m receiving a premium of $1,400. I put this trade on March 10th, and these options expired on 3/19. This is $1,400 in premium in 9 days. This comes to $155.55 in premium per day, or PPD. Now this includes weekends. My rule is I’m buying back the option when I can get 90% of the maximum profits, but there’s an exception to this rule. First, let me tell you what that means. So again, I sold each contract for $28, for $0.28. The idea is to buy back the option at $0.03, and this is exactly what I did today (March 17th). So we have another two days to expiration. So today, I bought back a total of 50 contracts at $0.03, and by doing so I made $0.25 in profits on MARA. Now, this is where again, we’re looking at 50 contracts, times $25, so this is $1,250. I was in this position for 7 days. So $1,250, divided by 7 days, means that I made $178.57 a day. Let’s just round to $179 per day. As you can see, $179 is more than the $155.55 that I planned per day. Now let’s think about it. If I would keep MARA right now, if I would keep this option until expiration, but what would happen? I would make an additional $150 in three days. This means that now my premium per day is only $50 per day. This doesn’t make sense to me because this here is actually bad, because my plan was to make $156 per day, and I was able to make $179 per day by buying the options back. If I would hold on to this trade and let it expires worthless. So this is where here, and let it expire worthless, right? This is what would happen. I would make an additional $150 in three days and the premium per day would only be $50. That does not make sense to me at all. This is why here in MARA, it made sense to buy back the put option because by doing so, it frees up buying power meaning that now I can sell more puts. So the idea here is that I’m selling more puts and making more money on the new puts than I would make holding on to MARA. DKS Example Let’s go over another example with a position I have right now with DKS . I sold the 66 strike on March 10th. I sold 15 of them and I received $75 in premium. 15 contracts times $75 comes to $1,125. So let’s do the math right now and see if it makes sense to close this trade today (March 17th) or if we should keep it, and we’re using very similar logic here. So we sold the 66 put expiring March 19th, and we received $75 per contract for it, $1,125 total. We then divide this by 9 days to get to our premium per day, which is $125. So right now, on March 17th, let’s see how much DKS is still worth. Right now, the bid/ask for DKS is $0. 05 over $0.10, and that’s really interesting because I want to buy it back at $0.07. Let’s say right now, if I would place an order right now, I could buy it back at $0.10. Should I do it? If I did this, I would make $75, minus $0.10 ($10 per contract), which is $65 per contract. For all 15 contracts, I would make $975. We find our PPD by dividing $975 by 7 days, which comes to $139. So if I really wanted to, and if I needed to free up some buying power, I could do this. But let’s see what happens if we hold this for a few more days. So if we hold DKS until expiration, we can make an additional $150. It might actually make sense to close it out because $150 over the next three days does not make a lot of sense. When I looked at the option earlier, DKS suddenly jumped from 78 to almost 79. This is a 10% jump in 30 to 45 minutes. When we opened this morning, first, we went down, and then we went a little bit up, and then we were hovering right around where we opened. Earlier this morning, the DKS put was trading at $0.25. So the question is earlier this morning, would it have made sense to close it? Earlier today on March 17th, I could have bought it back for $0.25. So that wouldn’t have made sense, right? Because then if I’m buying it back for $0.25, I would only make $0.50. So this here, $0.50, this is then $750 in seven days, and if we divide $750 by 7 days, this is $107 premium per day. As you can see, the $107 premium per day is less than what I expected. If I would hold DKS to expiration, we can make an additional $0.25, $25 times 15 contracts is $375. Now, if you take the $375 in 3 days, that would be $125 premium per day. So when I’m getting $125 premium per day, this is when it does not make sense to sell it just yet. Should You Take Profits Early? So this is the important thing because the question always is, do you take profits early, or hold until expiration? Well here’s my formula for this. So I want to give you a very specific formula that you can use if you want to. If the current realized premium is a premium per day, PPD, is larger than the planned PPD, this means close it out early. If the remaining premium per day is smaller than the planned premium per day, close it. Only if the current realized premium per day is smaller than the planned premium per day, in this case, hold it. If the remaining premium per day is larger than the planned PPD in this case, you want to hold it. Summary This is why today I wanted to show you my formula for when to take profits on options, especially when you are an options seller. You see, selling options and receiving premium is what we do with The Wheel Strategy, and the most important metric here is the premium per day (PPD). This where using the PPD, you can actually get down to a formula of when exactly you should buy or sell. This is where it’s just a good rule of thumb if you don’t want to do all these calculations. So the rule of thumb is I close a trade when I can realize 90% of the maximum profits.
NASDAQ:MARAEducation
by rockwelltrading
3
How I’ve Improved Productivity in My Trading DayI’ve been trading for a long time, and over the years, I’ve learned different ways to make the most of my time. Today, I want to talk about three ways I boost productivity in my trading day: - Using my PowerX Optimizer to quickly scan for long and short trading ideas. - Using my Wheel Income Calculator to find attractive premium collecting ideas. - Having a trading plan and following that plan. In this article, I’m going to break down each one of these and explain what they are. I’ll also explain how they help me streamline my trading. This gives me more time to focus on other things I’m interested in, like my business and real estate. 3 Pillars To Trading I always say there are three pillars to trading: - You need to have a trading strategy. - You need to have the right tools. - You need to have the right mindset. For me, I trade two strategies: PowerX and the Options Wheel. And I developed my own software tools to help me trade these strategies quickly and efficiently. The PowerX Optimizer software shows me what I should trade, when I should enter, when I should exit based on my preferred criteria, and my Wheel Income Calculator tells me which option strike has the best risk/reward. If trading software doesn’t show me this, it’s not allowing me to make the best use of my time. Let’s take a closer look at these software programs, starting with the PowerX Optimizer. PowerX Optimizer With my PowerX strategy, I’m looking to buy calls on stocks trending higher or buy puts on stocks trending lower. The PowerX Optimizer is a software I programmed for myself, my head coach Mark, and my son. A few years ago, we made it available to everyone. This software answers the three questions I’m looking to have answered when I’m looking for stocks - What to trade. - When to enter. - When to exit. The PowerX Optimizer will answer all three of these questions for you. Now, I had the software programmed for myself because I wanted all my criteria in one place. With the PowerX Optimizer, I can scan for my basic criteria that I set within the software. For instance, I want to see a 60% return on investment over the past year, I also want to see stocks that are between $5 and $200, and I want a profit factor higher than 3 and a risk/reward higher than 2. This is the criteria I use for trading this strategy. Your criteria may be different. The scanner finds the best stocks and options for me based on my criteria. I certainly don’t want to just stumble across a stock or trade everyone on TV is talking about. Worst case scenario, if nothing meets my criteria, I simply move on. Every day this scanner produces a list of stocks that I potentially want to trade — in less time than it takes to make a cup of coffee! Talk about a time saver! In the beginning, I would just use charting software like TradingView, and I would go through a bunch of stocks every day to see if they met my criteria. It got to the point where I figured there had to be an easier way, which is why I had the PowerX Optimizer developed Instead of spending hours and hours sifting through charts and doing the math, I’m able to find a handful of stocks to look through every day in just minutes. This frees up my time to focus on other things. The Options Wheel Calculator With my Options Wheel strategy, the idea is to “get paid to wait until you buy the stock.” So I’m looking to sell a put and collect premium, and I want to pick a strike that coincides with the level I would feel comfortable buying the stock. Ultimately, I want to get assigned, and then I’ll look to potentially sell covered calls on the stock. The tool I use to identify stocks and options I want to trade with this strategy is the Wheel Income Calculator. The Wheel Calculator pulls up stocks and tells me the minimum option premium I need to collect to make this trade work for me, and the risk/reward setup for each strike. I have set aside $500,000 in buying power for this strategy. That’s what works for me. It does work with smaller accounts if that’s what you have to work with. That’s why I love these tools. They have made my life so much easier. I’m not just picking a trade based on a gut feeling. Instead, I’m trading with a systematic approach that’s based on data. Remember, I like to trade for SCR Profits. SRC stands for Systematic, Repeatable, and Consistent. Trading Plan And that leads me to the last thing I want to talk about today: having a trading plan. You see, having a trading plan is key to having the right mindset to trade. There are three key parts of a trading plan that I’ve already mentioned, but again, they are: - What you’re going to trade? - When you’re going to enter? - When you’re going to exit — both for a profit and a loss. This is also where those limit and stop-loss orders I mentioned earlier come in handy. Limit orders allow you to tell your broker the price you want to get filled, and if you get that price, you move on. Same with stop-loss orders. You tell your broker what point you want to get out of the trade, and if the stock hits that level, you’re out. This allows you to not be tied to your computer, watching every tick the stock makes and opens up your day to allow you to focus on other things. I cannot stress enough how important it is to be prepared when you’re trading — and to have a plan before you enter a position. So, as you can see, by defining my strategies, I developed tools like the PowerX Optimizer and Wheel Income Calculator to help me find trades quickly and efficiently that work with my rules and my plan. I hoped this helped and I’ll see you at the next one.
TVC:SPXEducation
by rockwelltrading
1
How To Start A Successful Trading BusinessWhen you start trading, you need to go into it like you would if you were getting ready to start a business. Too often, I see new ‘traders’ who open their account and before ever mapping out any goals, a strategy, a trading plan, or anything, they’re already putting money into the markets… …and for me, this isn’t trading, this is gambling. So in this article, I’m going to walk you through how you can start your own successful trading business. So let’s dive in! Starting A Trading Business: Step 1 – Charting Software First, as a technical trader (like me) you MUST have good charting software. Charting software is your window into the world of stocks. As a technical trader, we rely on charts and indicators to find high-probability setups. Charting software with good indicators is an essential first step in your path to being a successful trader. I personally use (and highly recommend) TradingView. It is a paid service and for what I do, I use the Pro Version which currently costs $14.95 per month but it is well worth it. Remember, starting your own successful trading business requires a modest investment into the ‘infrastructure’ of your business. Step 2 – Finding The Right Broker Now on to step 2, finding the right broker for you! Finding the right broker can be a tricky process, especially if you live outside of the United States. If you’re trading stocks and options, I highly recommend tastyworks, or Interactive Brokers if you live outside the U.S. Starting A Trading Business: Step 3 – Trading Strategy Next, now that you have your charting software and broker, every trader needs a good trading strategy. Similar to the broker, one size does not fit all. Why? Well, there are a LOT of variables that can go into developing your trading strategy. For example, are you trading for Income or Growth or the amount you have to trade with? All of these things play a big factor in the type of strategy you want to, can, or should trade. Right now, I’m trading two strategies. My core strategies right now are, The PowerX Strategy and The Wheel. Step 4 – Trading Computer The next thing to consider when getting your trading business set up is you will need a computer. Almost all brokers and trading software are cloud-based, so you don’t need a seriously advanced computer anymore. Most computers that are less than 3 years old should be more than powerful enough to run even the most system-intensive trading platform. Step 5 – Additional Monitors. Now, for your home set up, I think at least one additional monitor is a must. The good news is that if you have a laptop, you already have one monitor! If you travel a lot (like me) I would highly recommend the ASUS MB169B+ 15.6″ Full HD 1920×1080 IPS USB Portable Monitor. They’re lightweight and work great on the road or at home. It fits easily in my backpack (because I HATE checking bags) and doesn’t add much weight. Step 6 – Trading Newsletters Next, over my morning coffee, I like to read a few different trading newsletters. I have three primary newsletters right now where I get most of my market-related news. Most of the talking heads on TV are absolutely terrible for getting non-biased information anymore. No matter what station, everything you hear is coming through some sort of filter. For this reason, I stick with these three newsletters that I’ve found to provide good info: - Morning Brew - Seeking Alpha’s Wall Street Breakfast - The Rockwell Trading Newsletter Summary Now that you have all of the pieces in place to start your trading business off on the right foot, in my next article I’m going to go through something that at first, I’m sure you will cringe: Trading Taxes. But I assure you if you’re proactive and take the time to get set up and structured properly, taxes aren’t actually as bad as you’d think for full-time traders. I hope this has helped and you’ve enjoyed it. Good trading!
DJ:DJIEducation
by rockwelltrading