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Author Topic: Cotton #2: Friday 15 March 2019  (Read 241 times)

TradingAdmin

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Cotton #2: Friday 15 March 2019
« on: March 15, 2019, 10:49:05 am »

This is Cotton (courtesy of barchart.com):



It has been stuck in the range of that long bar for quite a while, broke out, then dropped back down.  It is in no hurry to go anywhere.  Trading it I would like to setup a neutral position, but giving me some space to the upside.  I use a Calendar Spread to manage the risk (as a hedge, reducing the risk) and then shorting a second Put Option.



This is a short-term trade, we will be out before the end of the May contract.  Note the extreme wide area in which we are capturing profit (risk graph to the right).  Breakeven is the thick yellow lines, profit in between.  $300 loss pictured as the thin yellow line below - really low risk.  Options graph on the left:
Blue is our profit/loss line on entry day, Orange the P/L on expiry of the May Options Contract, red the P/L for the Jul contract - we won't be in the market by then any more.

If cotton turns down, we can drop one of the two short Puts, turning the position into a Calendar Spread:



Risk is REALLY low (thin yellow lines at $300 loss); we are now capturing profit on cotton trading lower / staying level
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Re: Cotton #2: Friday 15 March 2019
« Reply #1 on: March 19, 2019, 10:41:37 am »

Update:  Tuesday 19 March 2019



The weekend saw us pocketing $100 on this trade, shall we hold out another day or two?

We posted three trades on Friday, all three over the weekend lost time, all three are under pressure to make up the loss in time in price movement - against the current trend.  Failure of prices to do that means we are making money.  In total, the weekend had netted us $320 in profits.  If you have a small account and trying to build an account, this is not bad growth over a weekend.  Large account holders could of course have traded more than one contract for better results..
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Re: Cotton #2: Friday 15 March 2019
« Reply #2 on: March 26, 2019, 09:48:29 am »

Update:  Tuesday 26 March 2019



Our extreme risk management on the trade means we were safe in the face of the sharp rise in Cotton prices, but as can be seen on the Positiongraph on the left, there is really no point holding this any longer.  Actually, we should have exited out of this yesterday right after the open when we saw Cotton continuing its upwards movement - or even on Friday - however I took some time off with family and did not trade on Friday.  (As you can see, this style of trading is really relaxed, I do not have to monitor trades every day, can afford to take some time off away from the markets). 

At the moment we sit on $85 profit.  Not a lot, but take the profit and exit the trade.  Leg out of the trade.  Get rid of the long put (the loss making one), then buy back the short puts.  Take your time, they are far out the money and will probably expire worthless, pay as little as possible to buy them back.

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Re: Cotton #2: Friday 15 March 2019
« Reply #3 on: April 02, 2019, 04:14:52 pm »

We are out of Cotton...

Anything from here onwards is purely theoretical.  This is the situation at the moment:



Our options strategy are still containing the move in Cotton.  Profit at the moment would be $75
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