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Options Blueprint Series: Credit Spreads for Weekly PlaysIntroduction Credit spreads are a sophisticated options strategy involving the simultaneous purchase and sale of options of the same class and expiration, but at different strike prices. This approach is particularly effective in scenarios where the trader seeks to capitalize on premium decay while maintaining controlled risk exposure. Commonly used in volatile markets, credit spreads can offer a strategic advantage by allowing traders to position themselves in accordance with their market outlook and risk tolerance. Understanding Credit Spreads Selling one option and buying another with the same expiration date but different strike prices is done to earn the premium (credit) received from selling the higher-priced option, offset by the cost of buying the lower-priced option. There are two main types of credit spreads: Call Spreads and Put Spreads, specifically Bull Put Spreads and Bear Call Spreads. Bull Put Spreads: This strategy involves selling a put option with a higher strike price (receiving a premium) and buying a put option with a lower strike price (paying a premium), both on the same underlying asset and expiration. The trader anticipates that the asset's price will stay above the higher strike price at expiration, allowing them to keep the premium collected. This spread is termed "bull" because it profits from a bullish or upward-moving market. Bear Call Spreads: Conversely, this strategy involves selling a call option with a lower strike price (receiving a premium) and buying a call option with a higher strike price (paying a premium). The expectation here is that the asset's price will remain below the lower strike price at expiration. This spread is called "bear" because it benefits from a bearish or downward-moving market. Easy Way to Remember: Bull Put Spread: Remember it as "selling insurance" on a stock you wouldn't mind owning. You're betting the stock price stays "bullish" or at least doesn't drop significantly. Bear Call Spread: Think of it as "calling the top" on a stock. You're predicting that the stock won't go any higher, demonstrating a "bearish" outlook. Risk Profile The below graph illustrates the risk profile of a Bull Put Spread (Bullish Credit Spread that uses Puts): WTI Crude Oil Options Contract Specifications WTI Crude Oil options offer traders the opportunity to manage price risks in the highly volatile crude oil market. Key contract specifications include: Point Value: Each contract represents 1,000 barrels of crude oil, with each point of movement equivalent to $1,000. Trading Hours: Options trading is available from Sunday to Friday, providing extensive access to market participants around the globe. Margin Requirements: Initial margins are set by the exchange and are adjusted according to market volatility. USD 6,281 at the time of this publication (based on the CME Group website). Credit Spread Margin Calculation: For credit spreads, margins are typically lower as the margin for a credit spread in WTIC Crude Oil options is calculated based on the risk of the position, which is the difference between the strike prices minus the net credit received. This calculation ensures that the trader has sufficient funds to cover the potential maximum loss. (for example: a spread using the 78.5 and the 77.5 strikes which are 1 point away would require USD 1,000 minus the credit received). Understanding these specifications is crucial for traders looking to employ credit spreads effectively, ensuring compliance with financial requirements and alignment with trading strategies. Application to WTIC Crude Oil Options Credit spreads are particularly suited to the Weekly Expiration WTIC Crude Oil Options due to their ability to capitalize on the oil market's frequent price fluctuations. The strategy's effectiveness is enhanced by the oil market's characteristics: Market Dynamics: Crude oil prices are influenced by a myriad of factors including geopolitical events, supply-demand dynamics, and changes in global economic indicators. These factors can lead to significant price movements, creating opportunities for options traders. Strategy Suitability: Given the volatile nature of crude oil, credit spreads allow traders to take a directional stance (bullish or bearish) while limiting risk to the difference between the strike prices minus the credit received. This is particularly advantageous in a market where sudden price swings can occur, as it provides a safety buffer in case WTI Crude Oil moves against the trader and then comes to back towards the desired direction. By employing credit spreads, traders can leverage such market characteristics to potentially enhance returns while maintaining a clear risk management framework. Forward-looking Trade Idea For above TradingView price chart presents a trade setup as we consider the current market conditions and employ a put credit spread strategy, focusing on two UFO (UnFilled Orders) Support Price Levels that indicate potential support below the current market price of WTIC Crude Oil Futures. These levels suggest that prices are unlikely to drop below these thresholds anytime soon. Trade Setup: Utilize the 78.5 and 77.5 put strike prices for the credit spread. Sell a put option at the 78.5 strike price, where we expect the market will not fall below and collect 0.13 points (USD 130). Buy a put option at the 77.5 strike price to limit downside risk and define the trade’s maximum loss and pay 0.07 points (USD 70). Premium Collected: The credit received from this spread is the difference in premiums between the sold and bought puts, which contributes to the overall profitability if the options expire worthless. The net credit collected is USD 60 (130-70). Expected Outcome: The best scenario is for WTIC Crude Oil prices to stay above the 78.5 strike at expiration, allowing the trader to retain the full premium collected while minimizing risk. As seen on the above screenshot, we are using the CME Options Calculator in order to generate fair value prices and Greeks for any options on futures contracts. This trade is predicated on the belief that the underlying crude oil price will remain stable or increase, ensuring that the prices do not fall to the strike price of the sold put, thereby maximizing the potential for profit from the premiums. Risk Management Effective risk management is crucial when employing credit spreads in trading. Given the defined risk nature of credit spreads, several strategies can be implemented: Position Sizing: Adjust the number of spreads to fit within the overall risk tolerance of the trading portfolio, ensuring that potential losses do not exceed pre-determined thresholds. Stop-Loss Orders: Although credit spreads have a built-in maximum loss, setting stop-loss orders based on market price can help lock in profits or prevent excessive losses in volatile market conditions. Monitoring: Regular monitoring of market conditions and adjusting positions as necessary can help manage risks associated with unexpected market movements. Conclusion Credit spreads offer a strategic advantage for options traders looking to leverage market movements while controlling risk. By focusing on premium collection and employing a disciplined approach to risk management, traders can enhance their chances of success in the volatile WTIC Crude Oil options market. 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.
NYMEX:CL1!Education
by traddictiv
WAL Western Alliance Bancorporation Options Ahead of EarningsIf you haven`t bought WAL before the previous earnings: Then analyzing the options chain and the chart patterns of WAL Western Alliance Bancorporation prior to the earnings report this week, I would consider purchasing the 52.50usd strike price in the money Calls with an expiration date of 2024-6-21, for a premium of approximately $6.35. If these options prove to be profitable prior to the earnings release, I would sell at least half of them.
NYSE:WALLong
by TopgOptions
MSFT Microsoft Corporation Options Ahead of EarningsIf you haven`t entered MSFT when they bought 49% of OpenAI: nor on the comparison to AMZN and GOOGL: Then analyzing the options chain and the chart patterns of MSFT Microsoft Corporation prior to the earnings report this week, I would consider purchasing the 410usd strike price Calls with an expiration date of 2024-6-21, for a premium of approximately $14.25. If these options prove to be profitable prior to the earnings release, I would sell at least half of them.
NASDAQ:MSFTLong
by TopgOptions
2
PM Philip Morris International Options Ahead of EarningsIf you haven`t bought the dip on PM: nor sold the top: Then analyzing the options chain and the chart patterns of PM Philip Morris International prior to the earnings report this week, I would consider purchasing the 92.50usd strike price Puts with an expiration date of 2025-1-17, for a premium of approximately $5.80. If these options prove to be profitable prior to the earnings release, I would sell at least half of them.
NYSE:PMShort
by TopgOptions
Vix Gaps up 18% with Israel/Iran Conflict The Markets are moving money into buying Puts and this signals Fear. This is what war does I suppose and is the logical scenario that we would anticipate. Put Options are being bought as market participants anticpate lower prices on the Indices overall in the Short term at least here. We gapped up to a Daily level on the Vix where we consequently observed a decrease. The Size of the gap coupled with the Daily level and the not-too-far off Weekly level provided a strong place to reverse to fill the gap. The market is up 3% on the day after being up much more. Since the beginning of the Israel/Iran Conflict (Monday April 15th) the Vix is up 9% . As we move further into Q2, I'm anticpating a continued pullback in the broader stock market or even range. Vix may go sideways or range
TVC:VIXLong
by ShrewdCatfx
Speculation to correction risk: COSTNASDAQ:COST was over-speculated by retail groups. Extreme angles of ascent do not hold. The severity of the recent angle of ascent due to speculation warned well ahead of time that COST would have a meltdown when buyers evaporated. The first strong support level is at the black line. The Weekly chart shows stronger runs up than down. Costco is frequently speculated as there are retail gurus and chatroom groups, etc. that run the stock up from time to time. However, this stock is absurdly overpriced at this level and needs to do a split.
NASDAQ:COSTShort
by MarthaStokesCMT-TechniTrader
1
Oil traders are making big bets..ooh, no...not really so🛢🔴Oil traders are making big bets amid geopolitical uncertainties! 3 million barrels worth of options contracts were snapped up by speculators, with 3,000 lots of June $250 call options in US crude oil trading for just 1 cent each. Is this a Hail Mary or a well-calculated move?🤔 (Source: www.bloomberg.com). The headline is very clickable, however let's look at the actual data from the exchange. It is evident that 25 putts were traded at the same time. This raises the question of whether oil prices will decline further or if we are facing a similar situation to March 2020. It is unclear what the player's expectations are and whether this is related to foreign policy or part of an arbitrage strategy.
TVC:USOIL
by ClashChartsTeam
Options Blueprint Series: The Collar Strategy for Risk ReductionIntroduction to Nasdaq Futures Nasdaq Index Futures offer traders exposure to the Nasdaq-100 index, a benchmark for U.S. technology stocks, without directly investing in the index's component stocks. Trading on the Chicago Mercantile Exchange (CME), Nasdaq Futures provide a critical tool for managing market exposure on the future of technology and biotech sectors. Key Contract Specifications: Point Value: Each point of the index equates to $20 per contract. Margins: As determined by the CME, margins vary, reflecting the volatility and current market conditions. As of the time of this publication the CME website shows a maintenance margin of $17,700 per contract. Trading Hours: Nearly 24-hour trading capability, aligning with global market hours to provide continuous access for traders. It's important to note that similar strategies and benefits are available with Micro Nasdaq Futures , which are scaled down to a tenth of the standard Nasdaq Futures, making them accessible to a broader range of traders due to their lower margin requirements (Margin is 10 times less, point values are 10 times less, etc.) Basics of the Collar Strategy The Collar strategy is a risk management tool used by traders to protect against large losses in their investments while also capping potential gains. It is particularly useful in volatile markets or when significant price swings are expected but their direction is uncertain. Components of the Collar Strategy: Own the Asset: Typically involves owning the underlying asset, but in the case of futures, it involves holding a long position in the Nasdaq Futures contract. Buy a Protective Put: This put option gives the right to sell your futures contract at a predetermined strike price, serving as insurance against a significant drop in the market. Sell a Covered Call: This call option grants someone else the right to buy your futures contract at a set strike price, generating income that can offset the cost of the put option, but it limits the profit potential if the market rises sharply. This strategy forms a price collar around the current value of the futures contract, protecting against drastic movements in both directions. The use of this strategy in Nasdaq Futures trading can be especially effective given the index's exposure to high-growth, high-volatility sectors. Application to Nasdaq Futures Implementing the Collar strategy with Nasdaq Futures involves selecting the right put and call options to effectively hedge the position. Here's how you can set up this strategy: Choose the Underlying Contract: Decide whether to use standard E-mini Nasdaq-100 Futures or Micro mini Nasdaq-100 Futures based on your investment size and risk tolerance. Select the Put Option: Identify a put option with a strike price below the current market price of the Nasdaq Futures. This strike should represent the maximum loss you are willing to accept. The graphics of this article show UFO Support Price Levels below which accepting a larger loss could be seen as a form of hope. Using UFO Support Price Levels as a reference to select the Put strike could be an efficient manner to determine the desired risk. Choose the Call Option: Pick a call option with a strike price above the current market level, where you believe gains will be limited. The premium received from selling this call helps offset the cost of the put, reducing the overall expense of the setup. Selecting a call with its premium equal to the put price would allow for the Collar strategy to be cost-free (not risk-free). Risk Profile Visualization: A graphical representation of the risk profile will show a flat line of loss limited to the downside by the put and capped gains on the upper side by the call. This visualization helps traders understand the potential financial outcomes and their likelihood. Forward-Looking Trade Idea Considering the recent market dynamics, Nasdaq Futures have been experiencing a range-bound pattern after reaching all-time highs. With current geopolitical tensions such as the recent conflict between Iran and Israel, there's a potential for sudden market movements. Scenario Analysis: Continuation of Uptrend: If the market breaks above the range, selling the covered call may yield limited gains but will provide premium income. Significant Drop: If the market drops due to intensified conflicts, the protective put limits the potential loss, safeguarding the investment. That is knowing that if the market was to rebound after a significant drop, the strategy could end up as profitable as long such rebound would happen prior to the Options expiration date. Trade Setup: Entry Point: Current market price of Nasdaq Futures. Put Option: Select a put option below the current market price. The chart example uses the UFO Support Level located around 18,000. Premium paid for the 18,000 Put is estimated to be 511.79 points * $20 ($10,235.8). Call Option: Choose a call option above the current market price targeting the same level of premium as the premium paid for the put. The 18,300 Call is estimated to provide 522.65 points * $20 ($10,453). Expiration: Options with a 1-3 month expiration to balance cost and protection level. This trade example uses June Expiration which is 67 days away from expiration. As seen on the above screenshot, we are using the CME Options Calculator in order to generate fair value prices and Greeks for any options on futures contracts. This setup aims to utilize the Collar strategy to navigate through uncertain times with controlled risk, taking into account both the potential for continuation of the uptrend and a protective mechanism against a sharp decline. Risk Management Discussion Effective risk management is crucial when trading futures and options. The Collar strategy inherently incorporates risk management by design, but understanding and applying additional risk control measures is essential for successful trading. Key Risk Management Techniques: Limited Risk: By default, the Collar strategy is a limited risk strategy where the risk is calculated by looking at the current Nasdaq Futures price compared to the Put strike price and adding or subtracting the Collar execution price for a debit or credit respectively. Use of Stop-Loss Orders: Although the Collar strategy provides a natural hedge, setting stop-loss orders beyond the put option's strike can provide an extra safety net against gap risk and extraordinary market events. Regular Review and Adjustment: As market conditions change, the relevance of the chosen strike prices may alter. Regularly reviewing and adjusting the positions to ensure they still reflect your risk appetite and market outlook is advised. Diversification: While the Collar strategy protects an individual position, diversifying across different asset classes can further protect the portfolio from concentrated risks associated with any single market. Conclusion The Collar strategy offers Nasdaq Futures traders a structured way to manage risk while maintaining the potential for profit. By capping potential losses with a protective put and limiting gains with a covered call, traders can navigate uncertain markets with increased confidence. This strategy is particularly applicable in volatile markets or during periods of geopolitical tension, providing a buffer against significant fluctuations. 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:NQ1!Education
by traddictiv
101% Option Play on NVDA Today! Just wanted to share our heck of a option play that we pulled this morning with NVDA, as a projected pullback from the recent bounce and reaction from the CPI/PPI/Unemply. Data that was release this weekend. CNBC Analysts touted this as a safehaven, but I thought it was a false narrative based on the TA and what we were seeing on the charts going into the Aftermarket Session, yesterday. Pullbacks are healthy, so we exact a rebound back to the north based on the past few trading sessions. Stay Tuned for more as we move forward with providing you our Daily MyMI Option Playz at MyMI Wallet!
NASDAQ:NVDAShort
by MyMIWallet
Options Blueprint Series: Leveraging Diagonals with Corn FuturesIntroduction to Corn Futures (CBOT) Corn Futures, central to the commodities market, are traded on the Chicago Board of Trade (CBOT). These futures contracts are standardized agreements to buy or sell 5,000 bushels of corn, providing traders with a mechanism to hedge against price changes or to be exposed to future price movements in the agricultural sector. Contract Specifications: Contract Size: 5,000 bushels Quotation: Cents per bushel Minimum Tick Size: ¼ cent per bushel, equivalent to $12.50 per contract Trading Hours: Sunday to Friday, electronic trading from 7:00 PM to 7:45 AM CT, and Monday to Friday, daytime trading from 8:30 AM to 1:20 PM CT Contract Months: March, May, July, September, December, with additional serial months providing year-round trading opportunities Margin Requirements: Margins are set by the exchange and can vary, with initial margins typically being a fraction of the contract value to secure a position ($1,300 at the time of this publication) The liquidity and volume in Corn Futures make them an attractive market for traders. Factors influencing corn prices include weather patterns affecting crop yields, global supply and demand dynamics, and changes in energy prices due to corn's role in ethanol production. Understanding Diagonal Spreads Diagonal Spreads are a sophisticated options strategy that involves simultaneously buying and selling options of the same type (either calls or puts) with different strike prices and expiration dates. This approach is designed to leverage the time decay (theta) and volatility differences between contracts, making it particularly suitable for markets with expected directional moves and distinct volatility characteristics, like Corn Futures. Key Components: Long Leg: Involves buying an option with a longer expiration date. This option acts as the foundational position, typically chosen to be in-the-money (ITM) to capitalize on intrinsic value while also benefiting from time decay at a slower rate due to its longer duration. Short Leg: Consists of selling an option with a shorter expiration date and a different strike price, usually out-of-the-money (OTM). This leg generates immediate income from the premium received, which helps offset the cost of the long leg. Strategic Advantages: Directional Flexibility: Diagonal spreads can be tailored to bullish or bearish outlooks depending on the selection of calls or puts, strikes and expirations. Time Decay Harnessing: By selling a shorter-term option, the strategy aims to benefit from the rapid acceleration of time decay on the sold option, improving the position's overall theta. Given the cyclical nature of the agricultural sector and the specific factors influencing corn prices, diagonal spreads offer a strategic method to trade Corn Futures options. They provide a balance between long-term market views and short-term income generation through premium collection on the short leg. Application of Diagonal Spreads to Corn Futures In applying Diagonal Spreads to Corn Futures, we focus on a bearish strategy to capitalize on an anticipated gap fill below the current price level. This strategic choice is driven by the analysis of Corn Futures' price action, indicating potential downward movement. A bearish diagonal spread can be particularly effective in such scenarios, offering the flexibility to benefit from both time decay and directional movement. Bearish Diagonal Spread Setup: Long Leg (Buy Put): Select a put option with a longer expiration date to serve as the foundation of your bearish position. Choose a strike price that is at-the-money or in-the-money (ATM/ITM) to ensure intrinsic value. Short Leg (Sell Put): Sell a put option with a shorter expiration date at a lower strike price that is out-of-the-money (OTM). Trade Example: Assumption: Corn Futures are trading at 434 cents per bushel. Long Put: Buy a 47-day put option with a strike price of 435 cents, paying a premium of 7.49 cents per bushel ($374.5 – point value =$50). Short Put: Sell a 19-day put option with a strike price of 415 cents, receiving a premium of 1.01 cents per bushel ($50.5 – point value =$50). As seen on the below screenshot, we are using the CME Options Calculator in order to generate fair value prices and Greeks for any options on futures contracts. The goal is for Corn Futures to decline towards the 415-cent level (origin of the gap). Risk Considerations: While diagonal spreads can offer controlled risk (premium paid = 6.48 = 7.49 – 1.01 = $324 – point value =$50) and strategic flexibility, it's crucial to be mindful of the potential for loss, particularly if the market moves sharply in an unintended direction. Employing risk management techniques can help mitigate these risks: Adjustments and Rolls: Proactively manage the position by adjusting or rolling the short leg to a different strike price or expiration date in response to market movements or changes in volatility. This can help collect additional premium and potentially offset losses on the long leg. Use of Stop Losses: Implement stop-loss orders based on predefined risk tolerance levels. This could be set as a percentage of the initial investment or based on the technical levels in Corn Futures prices. Diversification: While not specific to the strategy, diversifying your portfolio beyond just Corn Futures options can help manage overall market risk. Different markets may react differently to the same economic indicators or geopolitical events, spreading your risk exposure. Regular Monitoring: Given the dynamic nature of Corn Futures and the options market, regular monitoring is crucial. Stay informed about market conditions, news impacting agricultural commodities, and changes in volatility that could affect your position. Diagonal spreads in Corn Futures offer a strategic avenue for traders looking to exploit market conditions and time decay with a defined risk profile. However, the key to successful implementation lies in diligent risk management, including making informed adjustments, employing diversification, and maintaining a disciplined approach to monitoring and exiting positions. Conclusion In this edition of the Options Blueprint Series, we explored the strategic application of Diagonal Spreads to Corn Futures traded on the Chicago Board of Trade (CBOT). This advanced options strategy offers traders a nuanced approach to potentially capitalize on market movements, leveraging the inherent time decay of options to enhance potential returns. Employing Diagonal Spreads allows traders to express a directional bias—bearish, in our case study—while managing the investment's risk profile through a combination of long-term and short-term options. By buying a longer-dated, in-the-money put and selling a shorter-dated, out-of-the-money put, traders can set up a position that benefits from both the expected downward movement towards a gap fill and the accelerated time decay of the sold option. However, as with any sophisticated trading strategy, understanding and managing the associated risks is paramount. Directional risks, volatility changes, and the potential for early assignment on the short leg require vigilant management and a readiness to adjust the position as market conditions evolve. By adhering to disciplined risk management practices—such as making timely adjustments, employing stop losses, and maintaining portfolio diversification—traders can seek to navigate the complexities of the options market and aim for consistent, strategic gains. The Corn Futures market, with its dynamic price movements influenced by a range of factors from weather to global supply and demand dynamics, provides a fertile ground for applying Diagonal Spreads. Traders who invest the time to understand both the underlying market and the intricacies of this options strategy may find themselves well-positioned to exploit opportunities that arise from market volatility. In summary, Diagonal Spreads present a strategic option for traders looking to leverage market insights and options mechanics in pursuit of their trading objectives. As always, education and practice are key to mastering these techniques, with paper trading offering a risk-free way to hone one's skills before venturing into live markets. 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:ZC1!Education
by traddictiv
4