Selling Options on Futures: The good, The Bad and The Ugly along with Bonds Chart review and analysis.
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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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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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.Source: Moore Research Center, Inc.
Date | Reports | Expiration & Notice Dates |
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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 |
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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
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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 |
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FN=First Notice, OE=Option Expiration, LT=Last Trade |
* 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!