Get started

Eventdriven

Event-Driven Trade Setup for Novel TradersCME: Euro FX ( CME:6E1! ), NYMEX: WTI ( NYMEX:CL1! ) Since I joined the TradingView community two years ago, I have discussed numerous trade ideas based on event-driven strategies. Below is my all-time favorite. Russia and Ukraine together account for 28% of the wheat export market. Their military conflict started in February 2022 threatened global wheat supply, pushing wheat prices up by 75% within weeks. On June 22th 2022, I experimented a Long Straddle Options Strategy on CBOT Wheat Futures in this TradingView commentary • Viewing geopolitical crisis as a market moving event, I categorized its future outcomes as binomial, being “Risk On” or “Risk Off”. • Call options on Wheat futures would gain in value if the conflict escalated, where Put options would profit in a cease-fire scenario. Today, let’s take a look at two event-driven trades I have crafted, followed by a step-by-step guide to set up the hypothetical trade. First case: On May 27th, I posted “Event-Driven Strategy using WTI Weekly Options”. • Using the June 2nd OPEC+ meeting as a market moving event, I considered the outcomes binomial, being “Within Expectation” and “Exceeded Expectation”. • CME Group OPEC Watch Tool indicated a high probability of the OPEC+ maintaining its output quotas. This was the prevailing market expectation. I expected the crude oil market to react calmly if OPEC+ made no changes. To express this view, I experimented simultaneously selling an Out-of-the-Money (OTC) Call and an OTC Put Options on WTI crude oil futures ( NYSE:CL ). The trader would deposit $6,001 margin and collect $460 premium upfront. These weekly options expired in 12 days on June 7th. • OPEC+ made no changes in output level on June 2nd. • During the duration of the options contracts, oil prices never went above our call strike of 82.8 or dipped below our put strike of 72.8. • After market close on June 7th, the clearing house would release the margin back to the trader, as the options he sold expired worthless. • The $460 premium the trader collected upfront became the profit of this trade. Second case: On June 12th, I posted “Euro to Weaken as the ECB Pushes Rate Cuts Forward”. Based on the Interest Rate Parity (IRP) theory, the interest rate spread between the US Fed Fund rates and the European Central Bank key rates is considered the main driver for Euro-USD exchange rate. Each Fed meeting and the ECB rate setting meeting will be market moving events, which will influence the relative value of the Euro against the Dollar. In my opinion, the ECB will cut rates more frequently than its US counterparts, leading the Euro depreciation. To express this view, I propose to Short the Euro-FX futures. • On June 12th, the September (6EU4) Euro-FX contract quoted 1.08605. Each contract has a notional value of €125,000. CME requires an initial margin of $2,100. • On June 12th, the Fed decided to keep the Fed Funds rate unchanged at 5.25%-5.50%. • On June 16th, 6EU4 is quoted at 1.07465. The 114-pip drop in Euro futures price will translate into a gain of $1,425 (= 114 x $12.5) in the short position. The next ECB Governing Council meeting is on July 18th. The next Fed meeting is on July 31st. CME Group FedWatch Tool shows an 87.6% probability of the Fed keeping interest rate unchanged. If the ECB continues to cut rates, I expect the Euro to fall further. Event-Driven Trade Setup for Novel Traders Firstly, find a major event with a magnitude to move the global market. Examples are Fed and ECB rate-setting meetings, releases of US CPI data and nonfarm payroll reports, OPEC+ meeting, the US-China trade conflict, the COVID pandemic, and the Russia-Ukraine conflict. Secondly, analyze the event impact and define it into binary outcomes. These outcomes must be mutually exclusive and collectively exhaustive (MECE). Examples: • The 2022 US Mid-term election: House controlled by Republican or Democrats. • The 2023 Debt ceiling crisis: Resolved or Not Resolve. • Spot Bitcoin ETF: SEC approval or denial. • The trial of the former US president: Guilty or Not Guilty. If there are too many outcomes, it would be difficult to construct a trading strategy. Take the 2024 US presidential election as an example, it has two possible outcomes: Democrat Win or Republican Win. Thirdly, search and identify financial instruments that are most affected by the event. For example, ECB meeting to Euro-USD exchange rate, OPEC+ meeting to WTI crude oil, Fed meeting to US stock market indexes. If market prices did not respond to event outcomes, then this is not the right instrument to use. Finally, set up the trade. • In a scenario where one outcome pushes the prices up and the other outcome drags the prices down, we could consider Long Futures or Call Options to express a bullish view. Similarly, Short Futures or Put Options position would signify a bearish view. • Futures and options come with leverage. They are a capital efficient way to invest. • In a different scenario, one outcome would increase short-term market volatility, but the other outcome will be received by muted reaction. In the latter, if we expect the market to move sideways, we could sell short-dated options to collect premium income. For our discussion in the next week: The first US presidential debate will be held on CNN on June 27th. This is a major event as the candidates’ performance will play a big role into voters’ decisions in November. Now I have a question for my readers: What financial instruments would be impacted the most by the debate? Specifically, what prices would go up for a perceived win by former President Trump, and what would fall if the approval rate rose for President Biden after the debate? Please leave your comments below. Thanks in advance for your support. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CME:6E1!Short
by JimHuangChicago
1
Managing Oil Risk Around OPEC MeetingsRudyard Kipling wrote in his famous poem, “If you can keep your head when others are losing theirs and blaming it on you, then you’ll be a man, my son.” Shocks from OPEC decisions can leave even the experts on the edge of their seats. Short-dated options on crude oil are tailor made to address and manage such idiosyncratic risks helping each trader become a man of his own making. OPEC’s 187th meeting will be held on 30th November. On 22nd November, OPEC announced that the meeting was going to be rescheduled from its original date of 25th November. This is not the first time that OPEC meeting is being postponed. The 23-member OPEC+ alliance has competing interests which makes agreement among members difficult at times. Like last year, this time again, OPEC is rescheduling its meeting. Such news impacts oil markets hugely. Prices tanked. Put option premiums spiked. Put volumes broke records. Implied volatilities jumped 8.5% over three days. DISAGREEMENT OVER PRODUCTION QUOTAS ARE BREWING AT OPEC Not only was this meeting postponed but it will be held online instead of in-person. This is not the first time. This also occurred a year ago. It shifted its meeting online after fixing production targets at an in-person session in Vienna previously. Rescheduling of meeting is reported to be due to disagreement over production quotas. Following this announcement, Brent crude prices tanked 5% but rebounded swiftly to trade 2.3% lower. WTI fell 2.6%. As reported by Javier Blas of Bloomberg, deferment of OPEC production meeting stems from production quota arguments. The Financial Times reported on 17th November that OPEC was considering an incremental one million barrels per day (bpd) reduction. This is in addition to previous production cut commitments from Saudi Arabia and Russia. 2024 is looking precarious for the OPEC. Feeble demand growth compounded by a backdrop of elevated supply growth. The possibility of the OPEC+ deal of production cuts imploding is small but cannot be ruled out. A failure to come to an agreement can leave the oil market with uncertainty ahead. IMPLICATIONS OF DEAR OIL Equity and bond markets globally are in a celebratory mood on cooling inflation. Any shocks to the oil market could send inflation back up again. Refined fuel inventory levels look precariously low at levels unseen since 1982. Diesel and Heating Oil Inventory Levels are precariously low (Source: Bloomberg ) Compounding low refined fuel inventory is the continued low levels of US Strategic Petroleum Reserves which are at a forty-year low. US Strategic Petroleum Reserves continue to languish at 40-year lows BEARS ARE CHARGING OIL PRICES LOWER Crude prices are down about 20% from its September peak. Solid output from the US, and feeble indicators from China have sent oil prices cooling despite elevated geopolitical threats. Since touching a high of USD 95/barrel on 28th September, prices have steadily declined with spurts of bear market rallies. US West Texas Intermediate first continuous futures contract has traded exhibiting strong mean reversion for much of this year Technicals point to near term overall weakness. Momentum indicators point to sharp sell down risks. Mean reversion indicators point to ambivalence with a neutral direction signal. US West Texas Intermediate second continuous futures contract has traded exhibiting strong mean reversion for much of this year Global oil markets are expected to move into surplus early next year, according to the International Energy Agency on slowing demand growth. OPTIONS MARKET SIGNALS NEAR TERM BEARISHNESS AND LONGER-TERM BULLISHNESS Pricing of options expressed by way of implied volatilities shows that puts have been more expensive than calls. As a result, the skews are supressed and hovering at 7-month lows. Cost of options expressed in implied volatilities have shot up for puts relative to calls pushing skews down (Source: CME CVOL ) Inline with the behaviour observed in implied volatilities, charts below summarise the change in open interest between close of markets on 23rd November and 17th November. Participants have been ramping up puts relative to calls except for options expiring on 29th November and 1st December . Notwithstanding the positioning of traders and portfolio managers on near term options, options traders have a strong bullish position in longer term (going into latter part of December and next year) with put-call ratio at 0.63 implying five calls (bullish trades) for every three puts (bearish trades). Open Interest across the forward curve shows higher number of calls relative to puts (Source: CME QuikStrike ) The brewing disagreements among OPEC members are impacting implied volatility on crude oil options. CVol index on crude oil jumped 15% over merely 3 days on the announcement of OPEC meeting postponement. Volatility has been on the rise amid the ongoing lack of co-operation within the OPEC cartel (Source: CME QuikStrike ) HYPOTHETICAL TRADE SET UP The path ahead for oil prices looks uncertain. Volatility has spiked and could rise even higher on growing disagreement among OPEC members. If OPEC members go for deeper cuts, oil prices could rally. However, if the prisoner’s dilemma prevails, where OPEC majors continue pumping even more to flood the market, prices could tank. Amid such ambivalence, CME’s short dated crude oil options are tailored to manage price risks. Benefits of these short-dated options were described in a paper previously published. This paper posits an options strategy using the weekly crude oil option. OPEC is scheduled to meet on 30th November. A hypothetical trade is illustrated below using options expiring on 1st December. A long strangle involves holding a long-call and a long-put option at different strikes but with the same expiry and underlying. Strangle on crude oil delivers gains when prices swing wildly. However, the strangle loses money if price moves remain muted. Pay-off from this hypothetical options strategy is illustrated below. The long strangle requires USD 2.88/barrel (USD 1.47/barrel for long call at 75.5 and USD 1.41/barrel for long put at 74.5). CME Options Calculator can be used to arrive at the latest premium values at the specified strikes. The overall premium for the strangle represents approximately 3.8% of current oil price at $75 (indicative) and the trade breaks even at expiry when oil is either at $71.62/barrel or $78.38/barrel. MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
NYMEX:MCL1!
by mintdotfinance
2
Event-Driven Strategy on Binary OutcomesCBOT:ZS1! Last week, I laid the groundwork for a new idea on event-driven strategy. Event-Driven Strategy Focusing on Global Crisis. Three-factor Commodities Futures Pricing Model and Game Theory Matrix were introduced, illustrated with my own experience trading COMEX Gold Futures (GC) during the US-China trade conflict in 2019. My idea was featured on Editors’ Picks, generating over 16,000 views and nearly 800 likes. Today, I would expand my idea to traders who want to construct their own event-driven strategy, in a 3-step approach. Firstly, to qualify as a crisis, it needs to have the magnitude to shock the global market. Below is a few examples of global crises in the past five years: • US-China Trade Conflict (2018): The two countries account for 42% of global GDP and have a combined population of 1.7 billion people, 22% of the world total. New tariffs imposed on thousands of goods with multi-year cumulative amount reaching $2 trillion. • African Swine Fever (2018): It reportedly wiped out 60% of the pigs in China. Supply shortage from the No. 1 pork producer sent pork price up 300% in China. Global markets from the U.S. to Europe also felt the pain, as meat prices went up across the board, affecting pork, beef, lamb, and poultry. • Brexit (2019): The withdrawal of Great Britain from the European Union resulted in a loss of 20% of GDP and 13% of population in the world’s third largest economic block. The impact on Britain itself is less than certain, as it would trade less with EU members, and more with countries outside of Europe. • COVID (2019): The Coronavirus outbreak has turned into a global pandemic, and dramatically changed the world and our lives as we know it. • Trump defeated in the U.S. presidential election (2020): It put a stop to the “America First” policies. In just four years, U.S. political landscape has once again swung widely. • Russia-Ukraine Conflict (2022): First major military conflict in Europe since WW2. In addition to the hundreds of thousands of casualty and millions of refugees, the ongoing conflict disrupted the global supply of energy and agricultural products, sending US inflation to a 40-year high. • Lockdowns in China (2022): Dozens of Chinese cities have been under some form of lockdowns in recent months, affecting a quarter of its population. It also created huge bottleneck in global supply chain, sending rippling effects around the world. Secondly, analyze the impact of a crisis and attempt to define it in binary outcomes. These outcomes must be mutually exclusive and collectively exhaustive (MECE). If you are unclear of the outcomes, or there are too many of them, it would be difficult to construct a trading strategy around the crisis. Riding on the above examples of crises events, we will have their binary outcomes as follows: • US-China Trade Conflict: Fight or Talk (alternatively, Tariff or No Tariff) • African Swine Fever: Contained or Spread Out (Not Contained) • Brexit: Approved or Not Approved • US Election: Democrats Win or Republicans Win • Ukraine situation: Putin Wins or Putin Loses (Peace deal is considered a Loss for Russia) • China’s Zero-Covid Policy: Shanghai Lockdown or End of Lockdown Thirdly, search and identify financial instruments that are most affected by the crisis. How do you know which is the right one amid a wide range of financial instruments? A quick test is to observe whether its price change correlates to the binary outcomes of the crisis. In a classical supply and demand diagram, fundamental drivers move price up or down along the supply and demand lines in a continuous fashion. A crisis event shifts the lines to the left or to the right, pushing sudden price bumps as the event hits the news headlines. Deep dive into the trade conflicts between China and the U.S., we can deploy the event-driven strategy on a commodity directly impacted by tariff. Interestingly, it was not a Chinese commodity tallied by Mr. Trump, but a U.S. commodity being taxed by China – Soybeans produced by U.S. farmers. On April 2nd, 2018, the Trump administration announced that it would impose 25% tariffs on about 1,300 industrial, technology, transportation, and medical products made in China. In less than a day, China responded by imposing a 25% tariff on 106 goods in 14 categories, including soybeans, automobiles, and chemicals originating in the U.S. Following China’s announcement, CBOT Soybeans Futures (ZS) dropped 2.2% and touched a low of $9.83/bushel. In my view, the initial price down was an understatement. I believed that CBOT Soybeans could go a lot lower with the tariff making the U.S. grains less competitive than those from South America. Over the next week, I put in Short ZS Futures positions, mainly on back-month contracts. Here are the logics behind my trades. As the world’s largest consumer and importer of Soybeans, China imports 85% of its soybeans for domestic consumption to meet the huge appetite in cooking (soybean oil) and animal feeds (soybean meal). United States is the largest producer and exporter of Soybeans, with 68% of its export going to China. Tariff takes time to impact the market fully. At first, Chinese importers expedited purchase of US soybeans ahead of the tariff deadline. They also increased buying from Brazil and Argentina. Eventually, when the cheap grains were exhausted and inventory was depleted, they would be forced to buy from American farmers again. The higher price with tariff would encourage use of alternative ingredients and reduce the overall Chinese demand on soybeans. This prediction has been proven to be on the right track, as CBOT Soybean Futures continued to decline in the next three months until it hit $8.00/bushel, down 20% from levels before the tariff. Let’s rework the Soybean trade using our 3-step approach. Firstly, Does it have the magnitude to shock the global market? Yes. 40 million metric tons of soybeans, or $15 billion a year, would be taxed by China. It had huge negative impact on U.S. farm incomes. Secondly, could we define the Soybean tariff as an event with binary outcomes? Yes, it is either “Tariff On” or “Tariff Off”. If the tension escalated, tariff would stick and become a permanent part of soybean cost. On the other hand, if US and China started a trade talk, soybean tariff could be removed later. While the tariff impact on nearby futures is fixed, it is not so on back-month futures prices. Thirdly, is Soybean Futures the right instrument to use? Let’s apply our three-factor commodities pricing model on soybean, as follows: Soybean Futures Price = Soybean Cash Price + Market Sentiment + Probability of Tariff In a “Tariff On” scenario, the probability of tariff increases to 100%. While production cost in the U.S. is not affected, Chinese exporters must pay 25% more to buy. The reduced demand for U.S. soybean has the net impact of pushing futures price down. Therefore, the sign of Tariff Premium should be negative in the case of soybean futures. In a “Tariff Off” scenario, trade talk could reduce the probability from 100% to 25%, for example. A signal of Chinese demand recovery has the net impact of raising futures price up. Typically, about 1/3 of US soybean, or 40 out of 120 million metric tons of the grain, is exported to China every year. This sheer size made tariff a dominant factor driving soybean price, outweighing fundamental factors such as planted acreage, weather, and yield. This concludes the use of US-China Trade Conflict as a case study for applying the event-driven strategy. My next writings would explore new strategies on more recent event shocks such as the lockdowns in China and the Ukraine situation. Meanwhile, please tell me what you think, either on TV or by email. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
Editors' picks
CBOT:ZS1!Long
by JimHuangChicago
8
Flocking to FLOKI/USDTFLOKI/USDT 🟢entry: $0.00002467- $0.00002267 ❌stoploss: $0.00001749 🎯tp1: $0.00004066- $0.00004291 🎯tp2: to be determined as price action develops after listing 🔼potential %profit: +76.51% 🔽potential %loss: -26.11% r/r: 2.93 🐹Bybit is currently holding a public vote to determine which of 5 coins will be listed on their exchange next. 🐹Based on early polling and social media sentiment, it appears highly probable that FLOKI will win the listing. 🐹Additionally, the FLOKI market on Huobi is showing significant increased and sustained trading volumes through the month of April, indicating large scale accumulation. 🐹Based on this information, I am entering an event-driven long trade in FLOKI. 🐹This a not a type of trade that I take frequently, so I am going to buy this coin on spot and use a wider stop-loss and take-profit. I consider this trade to be riskier than average. 🐹Price is right at a previous demand zone, so I am entering at/near market and up to 10% below market price. 🐹I will take-profit on half the position at the identified previous resistance zone. 🐹Stop-loss is arbitrary and solely based on my particular risk tolerance for this trade. check back for updates as the position progresses. feedback and constructive criticism is always appreciated. ✌️all good luck and always practice strict risk management!
Long
by TylerPhilip
Lordstown Motors Event Play with high IVR selling for credit Selling naked put option at event Max profit: 90$ Probability of Profit: 77% Profit Target relative to my Buying Power: 21% Buy Power: $410 Max loss with my risk management: ~ $300 Tasty IVR: 56 Expiry: 30days Sell 2 RIDE April16' 10 PUT Selling put option for 0.45cr each Stop/my risk management : Closing immediately if daily candle is closing below $10, Safety zone at 13$ support. Take profit strategy: I'm taking at the 60% of max.profit in this case with auto sell order. (at 0.18 debit) If you liked this article, check my other ideas. Anyway: HIT THE LIKE BUTTON BELOW , and for fresh ideas follow me : @mrAnonymCrypto on tradingview anyway!
RLong
by TanukiTrade
2
EURGBP BUY OPPORTUNITY. EVENT TRADING - BoEBank of England (BoE) meeting minutes 12:00 UTC today (2nd August) Two Catalysts for EUR/GBP 1) BoE will announce its interest rate decision at 14:00 UTC+2 on 2nd of August. Markets are pricing 80-90% implied probability of a rate hike to 0.75% (it is 0.5% now). From reported economic indicators, the unemployment rate remains glued at 4.25% and wage growth has decelerated compared to latest inflation report from May ( from 2.9% to 2.7%). Core inflation has also surprised to the downside. Calculating using the futures contracts, markets have priced in the rate hike, therefore there should not be a gap up if they hike. In that case the market would react more on BoE outlook of the economy and economic projections, and there is a chance they will not be as good as markets may expect, as expectations right now are really high, Which gives me grounds to believe that even with a rate hike there is bigger change of a gap up of EUR/GBP (weak GBP) than gap down. And if they surprisingly do not hike, then than would be a hell gap up omg that would be awesome.. :D 2) You can also see that EUR/GBP is on the up trend and is approaching lower trend line, which is a huge support for this pair. That means that there is a technical catalyst for EUR/GBP to go up.
Long
by laurynas.lucka
1