August 9th, 2019 - Issue #977

In This Issue

1. Trading 201: Selling Options on Futures (Collecting Premium)
2. Hot Market Report: US T-Bonds Leading the Rest of the Markets
3. Economic Calendar

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1. Futures Trading 202: Selling (Writing) Options on Futures

From our friend Jim Wyckoff at JimWyckoff.com

There are old sayings in the futures industry that go something like this: "Eighty percent of all options on futures expire worthless." And, "The only way to make money trading options on futures is to sell them--not buy them." Neither one of these statements is accurate. This educational feature will focus on the advantages and disadvantages of selling (also called "writing") options on futures.

But before I discuss writing options on futures, let me first elaborate on the first "old saying" that 80% of options on futures expire worthless. While I have heard the saying many times through the years, I have seen very few credible statistics on the percentage of futures options "that expire worthless." Consider this: If a trader hedges his straight futures positions with options purchases, and those options do perform their function of limiting risk for a period of time, then those options have performed their intended function--even though they may expire "worthless." Also, most speculative options buyers who make profits on trades do sell their options before they ever expire. Thus, I expect it would be very difficult to have accurate statistics on the number of futures options that are bought and sold that did not successfully fulfill their intended purpose.

A major appealing factor for speculative traders to sell (or write) options, as opposed to purchasing options, is that the odds are more favorable for producing a winning trade. Reason: If a trader is writing options, generally the market can move "against" the trader by a certain amount before the trader sees his option's strike price hit and he starts to lose money. Also, the option writer has "time decay" working in his favor--meaning that the day the option is sold, its time premium starts to decay as the option moves toward expiration. Now you might be thinking this options-writing stuff all sounds pretty easy, huh? Well, hold on just a minute! Remember that there are trade-offs in every aspect of trading futures.

Here's the "rub" with selling options:

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2. Hot Market Report: Hot Market Report: US T-Bonds Leading the Rest of the Markets

Click on image below to enlarge

This week’s highlighted Market is The US 30 year treasury bond market and belongs to the "interest rate family" 10 year, 5 year, 2 year notes, the "Ultra bond" and others. All traded on the CBOT exchange.

I feel that bonds along with the yield curve have been leading the financial markets for the last few months. The President is pushing towards more rate cuts while Fed Chairman, Powell is not as eager....In between the trade war with China is creating a lot of instability in the markets Resulting in more volatility, higher than usuall. So far it seems that when bonds are up, stocks are down, energies are down and gold is up and vice versa. Obviously not that easy or straight forward but an observation I made over the last 10 weeks or so.

Daily chart from this morning, (August 23rd 2019 2019). As you can see the trend is still up and although a bit overbought levels, the bond market is signaling lower rates ahead and a flight to quality seen in US bonds. 166'26 is major resistance and if broken we can see a move towards the next level at the high 169's. Support below is at: 161'15

3. Economic Calendar

Source: Moore Research Center, Inc.

* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!