What Futures Traders Should Watch This Week
Options
By John Thorpe, Senior Broker
The Week Ahead
The key futures market news for next week focuses on WASDE (grain markets to roil), inflation data (CPI and PPI) and Michigan consumer sentiment, all of which will strongly influence interest rate futures. Additionally, the SpaceX IPO roadshow kicks off, potentially becoming one of the largest public offerings in financial history. The investor roadshow for SpaceX is expected to shift market attention to the commercial space and tech sectors.
Options Workshop 201:
Inexpensive volatility structure: Long Straddle
Buying both a call and a put at the same strike price and expiration is called a long straddle.
On a daily-expiring futures option, a trader might do this when they expect a large move in the underlying futures contract but don’t know (or don’t want to bet on) the direction.
How it works
Suppose a futures contract is trading at 5,000 and you buy:
Both expire at the end of the day.
Your total cost is the combined premium paid for both options.
Profit scenario
At expiration:
- If futures rally sharply, the call gains more than the put loses.
- If futures fall sharply, the put gains more than the call loses.
- If futures stay near 5,000, both options lose value and can expire worthless.
Your maximum loss is the premium paid for both options.
Why use a daily expiration?
Daily expirations are often used around events that can cause large intraday moves, such as:
- Economic data releases (CPI, jobs report, Fed announcements)
- Earnings reports (for stock-index futures)
- Major geopolitical news
- Market-open volatility
A trader might think:
“I don’t know whether the market will jump up or crash down after the announcement, but I think it will move more than the options market is pricing in.”
The long straddle is a way to express that view.
Example
Assume:
- Futures at 5,000
- 5,000 call costs 10 points
- 5,000 put costs 10 points
- Total cost = 20 points
Break-even levels at expiration:
- Upside: 5,020
- Downside: 4,980
If futures finish at:
- 5,050 → call worth 50, put worth 0 → profit = 50 − 20 = 30
- 4,940 → put worth 60, call worth 0 → profit = 60 − 20 = 40
- 5,005 → call worth 5, put worth 0 → loss = 15
Other reasons
Besides directional uncertainty, traders may buy a straddle to:
- Trade expected volatility itself.
- Hedge a portfolio against a sudden move in either direction.
- Take advantage of perceived underpricing of short-dated options.
- Capture potential market reactions to scheduled announcements.
The key question is whether the actual move ends up being larger than the move implied by the option premiums. If the market doesn’t move enough before the daily expiration, the rapid time decay of same-day options can make the position lose money quickly.
Important: Trading commodity futures and options involves a substantial risk of loss.
The recommendations contained in this example are of opinion only and do not guarantee any profits.
Past performances are not necessarily indicative of future results.
We can trade either side of the market and prepare for volatility. On Monday, reach out to your broker for trading ideas. Bull or Bear, you really shouldn’t care.
Is the smoke clearing in the Mid-East and the markets have a renewed sense of confidence?
The energy and metals are swirling in the uncertainty of a lack of resolution in the attempted unwinding of the Iranian nuclear program.
Don’t let your guard down just yet, the fog continues, tune into the Sunday evening markets to witness reactions to the weekend news streams, manufactured or true.
Plan your trade and trade your plan!
Earnings Next Week:
· Mon. Campbell Soup,
· Tue. Cracker Barrel, Casey’s General Store
· Wed. Oracle
· Thu. Adobe Systems, Lennar
· Fri. Quiet
FED SPEECHES: (all times CDT)
· Mon. Quiet
· Tues. 8 day blackout period
· Wed. Prior to Warsh’s first Public FOMC announcement
· Thu. Quiet
· Fri. Quiet
Econ Data:
· Mon. Consumer Inflation Expectations
· Tue. Balance of Trade, Redbook, Existing Home sales, Wholesale Inventories, API Crude Stock Change
· Wed. CPI, ADP Employment Change Weekly, EIA Crude stock Change
· Thu. PPI, Initial Jobless claims, EIA Nat Gas Stocks, WASDE
· Fri. Mich. Consumer Sentiment, Baker Hughes Oil Rig Count |
