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1. Market Commentary
2. Futures Support and Resistance Levels – S&P, Nasdaq, Dow Jones, Russell 2000, Dollar Index
3. Commodities Support and Resistance Levels – Gold, Euro, Crude Oil, T-Bonds
4. Commodities Support and Resistance Levels – Corn, Wheat, Beans, Silver
5. Futures Economic Reports for Wednesday September 16, 2015
Hello Traders,
For 2015 I would like to wish all of you discipline and patience in your trading!
Big FOMC this week! Meeting takes place tomorrow and Thursday with much anticipated announcement and language on Thursday, 2 PM EST.
Futures Options 101:
Market Strategies
1. Bullish Market Strategies
Futures Options Trading Spread Strategy |
Description | Reason to Use | When to Use |
---|---|---|---|
Buy a call | Strongest bullish option position | Loss limited to premium | Undervalued option with volatility increasing |
Sell a put | Neutral bullish option position | Profit limited to debt | Small debit, bullish market |
Vertical Bull Calls | Buy call, sell call of higher strike price | Loss limited to debt | Small debit, bullish market |
Vertical Bull Puts | Buy put, sell put of higher strike price | Loss limited to price difference | Large credit, bullish market |
2. Bearish Market Strategies
Futures Options Trading Spread Strategy |
Description | Reason to Use | When to Use |
---|---|---|---|
Buy a put | Strongest bearish option position | Loss limited to premium | Undervalued option with volatility increasing |
Sell a call | Neutral bearish option position | Profit limited to premium | Option overvalued, market flat, bearish |
Vertical Bear Calls | Buy at the money put, sell out of the money put | Loss limited to debt | Small debit, bearish market |
Vertical Bear Puts | Sell call, buy call of higher strike price | Loss limited to stroke price difference minus credit | Large credit, bearish market |
3. Neutral Market Strategies
Futures Options Trading Spread Strategy |
Description | Reason to Use | When to Use |
---|---|---|---|
Strangle | Sell out of the money put and call | Maximum use of time value decay | Trading range market with volatility peaking |
Arbitrage | Bull and sell similar simultaneously | Profit limited to debt | Any time credit received |
Calendar | Sell near month, buy far month, same strike price | Near month time value decays faster | Small debit, trading range market |
Butterfly | Buy at the money call (put), sell 2 out of the money calls (puts), buy out of the money call (put) | Any time credit received | |
Guts | Sell in the money put and call | Receive large premium | Futures Options have time premium and market in trading range |
Box | Buy at the money put, sell out of the money put | Small debit, bearish market | |
Ratio Call | Buy call, sell calls of higher strike price | Neutral, slightly bullish | Large credit and difference between stroke price of option bought and sold |
Conversion | Buy futures, buy at the money put, and sell out of the money call | Any time credit received |
Futures Options Writing
- Most futures options expire worthless and out of the money. Therefore, the option writer is collecting the premium the option buyer paid.
- There are three ways to win as an option writer. A market can go in the direction you thought, it can trade sideways and in a channel, or it can even go slowly against you but not through your strike price. The advantage is time decay.
- The writer believes the futures contract will not reach a certain strike price by the expiration date of the option. This is known as naked option selling.
- To hedge against a futures position. For example: someone who goes long cocoa at 850 can write a 900 strike price call option with about one month of time until option expiration. This allows you to collect the premium of the call option if cocoa settles below 900, based on option expiration. It also allows you to make a profit on the actual futures contract between 851 and 900. This strategy also lowers your margin on the trade and should cocoa continue lower to 800, you at least collect some premium on the option you wrote. Risk lies if cocoa continues to decline because you only collect a certain amount of premium and the futures contract has unlimited risk the lower it goes.
Option Buying & Spreads
Most futures options expire worthless and out of the money, therefore most people lose when buying options on futures. Cannon Trading believes there is still opportunity in buying , but you must be very patient and selective. We believe buying futures options just because a market is extremely high or low, known as “fishing for options” is a big mistake. Refer to the guidelines on our “Trading Commandments” before purchasing any futures options. Historic volatility, technical analysis, the trend and all other significant factors should all be analyzed to increase your probability of profit. All full-service accounts will receive these studies, opinions and recommendations upon request. Cannon Trading Company’s “Trading Commandments” can be used as a guideline to assist you in the process and decision making of selecting the right market and futures options to purchase.
- If coffee is trading at 84, we can buy 1 coffee 100 call and write 2 135 calls with the same expiration dates and 30 days of time until expiration. This would be in anticipation of coffee trending higher, but not above 135 in 30 days. We’d be collecting the same amount of premium as we’re buying, so even if coffee continued lower we’d lose nothing. Our highest profit would be attained at 135 based on options on futures expiration. To determine risk we’d take the difference between 135 and 100, which is 35 points and divide it by two, because we sold two calls for every one purchased. You’d then add the 17.5 points to 135 and this would give you the approximate break-even point based on option expiration. Risk lies if coffee rises dramatically or settles over 152.50, based on expiration.
- A typical calendar spread strategy we use often would be to write 1 option with about 25 days left until expiration and buy 1 with 60 days left. Example: If coffee was trading at 84 and we thought prices might be heading slowly higher. We can write 1 130 coffee call with less time and buy 1 coffee 130 call with more time in the anticipation that the market will trend higher, but not above the 130 strike before the first options on futures expiration. Some additional risk here lies in the difference between the two contract months. The objective is, if coffee trades higher over the next month but not above the 130 strike price, we’d collect the premium of the option we sold by letting it expire worthless. In addition, the option we purchased may also profit if coffee rises higher, but it may lose some value due to time decay if coffee doesn’t rally enough.
Did you know Cannon offers FOREX trading including the MT4 platform? Check out our Trading Systems/ALGO Trading and Managed Accounts section!
GOOD TRADING
Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.
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Contract Dec. 2015 | SP500 | Nasdaq100 | Dow Jones | Mini Russell | Dollar Index |
Resistance 3 | 2021.83 | 4470.00 | 16976 | 1188.33 | 96.56 |
Resistance 2 | 1997.42 | 4417.00 | 16758 | 1175.17 | 96.21 |
Resistance 1 | 1984.08 | 4386.00 | 16640 | 1167.83 | 96.00 |
Pivot | 1959.67 | 4333.00 | 16422 | 1154.67 | 95.64 |
Support 1 | 1946.33 | 4302.00 | 16304 | 1147.33 | 95.43 |
Support 2 | 1921.92 | 4249.00 | 16086 | 1134.17 | 95.08 |
Support 3 | 1908.58 | 4218.00 | 15968 | 1126.83 | 94.87 |
Contract | Dec. Gold | Dec. Silver | Oct. Crude Oil | Dec. Bonds | Dec. Euro |
Resistance 3 | 1115.1 | 14.62 | 46.27 | 157 11/32 | 1.1402 |
Resistance 2 | 1111.8 | 14.52 | 45.65 | 156 11/32 | 1.1375 |
Resistance 1 | 1108.1 | 14.45 | 45.16 | 154 13/32 | 1.1330 |
Pivot | 1104.8 | 14.35 | 44.54 | 153 13/32 | 1.1303 |
Support 1 | 1101.1 | 14.28 | 44.05 | 151 15/32 | 1.1258 |
Support 2 | 1097.8 | 14.18 | 43.43 | 150 15/32 | 1.1231 |
Support 3 | 1094.1 | 14.11 | 42.94 | 148 17/32 | 1.1186 |
Contract | Dec. Corn | Dec. Wheat | Nov Beans | Dec. SoyMeal | Oct. Nat Gas |
Resistance 3 | 400.3 | 512.3 | 906.17 | 325.37 | 2.85 |
Resistance 2 | 397.7 | 507.8 | 900.33 | 322.13 | 2.82 |
Resistance 1 | 394.1 | 501.3 | 894.67 | 319.77 | 2.77 |
Pivot | 391.4 | 496.8 | 888.83 | 316.53 | 2.75 |
Support 1 | 387.8 | 490.3 | 883.2 | 314.2 | 2.7 |
Support 2 | 385.2 | 485.8 | 877.33 | 310.93 | 2.67 |
Support 3 | 381.6 | 479.3 | 871.67 | 308.57 | 2.63 |
source:http://www.forexfactory.com/calendar.php
All times are Eastern time Zone (EST)
Date | 4:08pm | Currency | Impact | Detail | Actual | Forecast | Previous | Graph | |
---|---|---|---|---|---|---|---|---|---|
WedSep 16 | 5:00am | EUR | Final CPI y/y | 0.2% | 0.2% | ||||
EUR | Final Core CPI y/y | 1.0% | 1.0% | ||||||
Tentative | EUR | German 30-y Bond Auction | 1.18|1.1 | ||||||
8:30am | USD | CPI m/m | 0.0% | 0.1% | |||||
USD | Core CPI m/m | 0.1% | 0.1% | ||||||
10:00am | USD | NAHB Housing Market Index | 61 | 61 | |||||
10:30am | USD | Crude Oil Inventories | 0.7M | 2.6M | |||||
4:00pm | USD | TIC Long-Term Purchases | 103.1B |
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 here in 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.