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August 23rd, 2019 Newsletter

Selling Options on Futures: The good, The Bad and The Ugly along with Bonds Chart review and analysis.

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

By Ilan Levy-Mayer, VP

Click on image below to enlarge

ZB futures;

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

This chart was prepared using CQG Q Trader software, which you can demo for 14 days with real time data.
Bonds are a very liquid market with a relatively LARGE tick size of $31.25. This market offers different type of day-trading vehicle. Different behavior and personality. I like to look for set ups in this market and the 10 year notes in different ways. One is trying to "SCALP" the large tick size and the other, which I prefer is to look for "longer day trades " using the 15, 30 and 60 minutes charts. If you are a day-trader, you may want to watch this market, get a feel for the different type of trading it offers versus Indices or crude oil for example and see if it is a "worthy" market to add to your day-trading markets list. It goes without saying that bonds are an excellent market for options, swing trading and long term trading as well with 23 hours trading, strong volume and excellent liquidity. To access a free trial to the ALGOS shown in the chart visit and sign up for a free trial for 21 days with real-time data.

30 yr Treasury Bond Futures Specs
Hours: 05:00 PM previous day to 4:00 PM Central Time
Margins: $2530 initial, $2300 Maint. ( as of the date of this newsletter)
Point Value: full point = $1000 ( Example: 144.16 to 145.16 ). Min fluctuation is 0.01 = $31.25 ( Example: 144.16-144.17) Settlement: Physical Delivery
Months: Quarterly (March,June,Sep,Dec)
Weekly Options:YES

Some of the basic fundamentals to keep in mind when you are considering trading the U.S. 30yr Treasury Bonds for this matter:
1. Interest Rates.
2. FOMC Rate decisions and Language
3. Focus in macroeconomics
4. Bond Prices have an inverse relationship to Interest rates
5. Correlation to US Dollar prices
6. Inflationary prospects
7. Geopolitical Stability
8. U.S. Fiscal and Monetary Stability

Our brokers here at Cannon will be happy to chat about the Bond market, other interest rate products, other futures, options, futures spreads and much more! Feel free to contact us at any time.

3. Economic Calendar

Source: Moore Research Center, Inc.

Date Reports Expiration & Notice Dates
08/23
Fri
9:00 AM CDT - New Home Sales(Jul)
2:00 PM CDT - Cattle On Feed
 
 
LT: Sep 2,5,10 Year Notes Options(CBT)
Sep Bonds Options(CBT)
Sep Canola Options(CBT)
Sep Wheat Options(CBT)
Sep Corn Options(CBT)
Sep Oats Options(CBT)
Sep Rough Rice Options(CBT)
Sep Soybeans,Soymeal,Soyoil Options(CBT)
08/26
Mon
7:30 AM CDT - Durable Goods-Ex Transportation(Jul)
7:30 AM CDT - Durable Orders(Jul)
3:00 PM CDT - Crop Progress
 

 
 
 
08/27
Tue
8:00 AM CDT - FHFA Housing Price Index(Jun)
8:00 AM CDT - S&P Case-Shiller Home Price Index(Jun)
9:00 AM CDT - Consumer Confidence(Aug)
3:30 PM CDT - API Energy Stocks
LT: Sep Copper Options(CMX)
Sep Gold & Silver Options(CMX)
Sep Natural Gas Options(NYM)
Sep RBOB & ULSD Options(NYM)
08/28
Wed
6:00 AM CDT - MBA Mortgage Applications Index
9:30 AM CDT - EIA Petroleum Status Report
2:00 PM CDT - Dairy Products Sales
 
LT: Aug Copper(CMX)
Aug Gold & Silver(CMX)
Aug Platinum & Palladium(NYM)
Sep Natural Gas(NYM)
08/29
Thu
7:30 AM CDT - USDA Weekly Export Sales
7:30 AM CDT - Initial Claims-Weekly
7:30 AM CDT - Adv Intl Trade In Goods(Jul)
7:30 AM CDT - Adv Retail Inventories(Jul)
7:30 AM CDT - Adv Wholesale Inventories(Jul)
7:30 AM CDT - GDP-Second Estimate(Q2)
7:30 AM CDT - GDP Deflator-Second Estimate(Q2)
9:00 AM CDT - Pending Home Sales(Jul)
9:30 AM CDT - EIA Natural Gas Report
3:30 PM CDT - Money Supply
FN: Sep Natural Gas(NYM)
LT: Aug Feeder Cattle(CME)
Aug Feeder Cattle Options(CME)
08/30
Fri
7:30 AM CDT - Personal Income & Spending(Jul)
7:30 AM CDT - PCE Price Index(Jul)
7:30 AM CDT - Core PCE Price Index(Jul)
8:45 AM CDT - Chicago PMI(Aug)
9:00 AM CDT - Univ of Mich Consumer Sent-Final(Aug)
FN: Sep 2,5,10 Year Notes(CBT)
Sep Bonds(CBT)
Sep Copper(CMX)
Sep Gold & Silver(CMX)
Sep Platinum & Palladium(NYM)
Sep Wheat(CBT)
Sep Corn(CBT)
Sep Oats(CBT)
Sep Rough Rice(CBT)
Sep Soybeans,Soymeal,Soyoil(CBT)
LT: Aug Bitcoin(CME)
Aug Fed Funds(CME)
Aug Live Cattle(CME)
Sep RBOB & ULSD(NYM)
Aug Fed Funds Options(CME)
Sep Lumber Options(CME)
09/02
Mon
LABOR DAY
 
 
 

 
 
 
09/03
Tue
7:30 AM CDT - Chicago PMI(Aug)
9:00 AM CDT - Construction Spending(Jul)
9:00 AM CDT - ISM Manufacturing Index(Aug)
2:00 PM CDT - Cotton System
2:00 PM CDT - Fats & Oils
2:00 PM CDT - Grain Crushings
3:00 PM CDT - Crop Progress
FN: Sep Orange Juice(ICE)
 
 
 
09/04
Wed
6:00 AM CDT - MBA Mortgage Index
7:30 AM CDT - Trade Balance(Jul)
1:00 PM CDT - Fed's Beige Book(Sep)
3:30 PM CDT - API Energy Stocks
FN: Sep RBOB & ULSD(NYM)
LT: Aug Butter(CME)
Aug Milk(CME)
Aug Butter Options(CME)
Aug Milk Options(CME)
09/05
Thu
7:30 AM CDT - Initial Claims-Weekly
7:30 AM CDT - Productivity-Rev(Q2)
9:00 AM CDT - Factory Orders(Jul)
9:00 AM CDT - ISM Non-Manufacturing Index(Aug)
9:30 AM CDT - EIA Natural Gas Report
10:00 AM CDT - EIA Petroleum Status Report
2:00 PM CDT - Dairy Products Sales

 
 
 
FN=First Notice, OE=Option Expiration, LT=Last Trade

Disclaimer: This calendar is compiled from sources believed to be reliable. Moore Research Center, Inc. assumes no responsibility for any errors or omissions. It is meant as an alert to events that may affect trading strategies and is not necessarily complete. The release dates for certain economic reports may have been rescheduled.

* 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!

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