Recent Posts

21

Trading Ideas using Options Explorer / Re: British Pound (BPJ19): 28 March 2019

« Last post by TradingAdmin on April 02, 2019, 03:36:52 pm »

Friday caused some anxious moments as the BP continued to test the lower end of the trading range.  I monitored it the entire day but it failed to give me an opportunity to leg into a Call option on the upside.  At the close of day I was faced with the decision to get out, or to carry a Naked Put option through the weekend.

In the end I had to look back at the reasons why I was willing to take this trade:

• Because the BP was trading in a trading range.  If it broke out of the trading range, that would be my signal to get out.  By Friday it had not yet broke out of the trading range, so there was no "exit signal" yet
• Because of the very high premium it gave me and with only a few days left to expiry the time decay would be severe - and that is what we were after in this trade.  To exit on Friday, with two days with the market being closed not taken profit off, is against the plan with this trade

I thus decided to stay in.  Monday then was a bit nervous, for I had to wait for the Monday Close in order to get a new data point.  But alas, Monday the BP corrected up and I was able to get out with a profit of $319 - in 4 days time, that is not bad at all for a trade that did not go exactly according to plan!!



Now I could have taken my chances to wait another 4 days to the close to bank the remainder of the $588 we received for this option.  But I was taught (1) not to be greedy and take the money that is on the table and (2) strange things can happen during the last two/three days before options expiry, get out of the market unless you are so far away from your strike price that nothing can hurt you.  I looked at $320 on the table, in just four days, and decided that is enough, I am happy with that and I'm out of there!

22

Trading Ideas using Options Explorer / Re: British Pound (BPJ19): 28 March 2019

« Last post by TradingAdmin on March 28, 2019, 07:21:26 pm »

Since the opening (when I started to watch the BP today), been trying to get in.  But it opened towards the bottom of the trading range, which is not good; I personally prefer it trading close to the middle of the range.  Few minutes ago it dipped quite low, very close to the bottom limit of the trading range, so I decided to try and leg into the trade.  Also decided to be a little bit less greedy and go for a put option a little further away.  The BP trading at 130.9, allowed me to short a 130 strike put for 0.0094 points = $587.50.  Hopefully tomorrow it will trade up and allow me to leg into a call before the weekend.

At the moment my trade (only one leg setup) looks like this:

23

Trading Ideas using Options Explorer / Wheat (ZWK19): 28 March 2019

« Last post by TradingAdmin on March 28, 2019, 11:08:51 am »

I am trying to find a trading strategy in the Grains complex, for the more budget conscious (guys with smaller trading accounts who cannot afford the margin requirements on the British Pound; but who would like to build their accounts).  The extreme low IV at which these commodities trade at the moment makes it very difficult.

Here is a trade idea involving Wheat, which of all the grains are the most luck-lustre - it does not look like it is going anywhere.  That is what we want, we do not want wheat to go anywhere.  We can make money if it does just nothing...- just stay where you are, don't move. (This is probably one of the biggest advantages in trading options.  We are able to make money in flat markets, markets that goes nowhere.  Any other trading strategy, you need the market to move to make money.  Not so with Options.  We are quite happy to trade level markets!)



Note that we are setting up a double calendar position - we short a call in the front month and long a call in the back month; then short a put in the front month and long a put in the back month.  But then we short another Call and another Put in the front month.  You can further reduce the risk and the margin requirements by going 3/2.  Short three Calls and Puts in the front month, Long 2 Calls/Puts in the back month.

Profit from this position is about $1500 over the next 30 days, provided that Wheat goes nowhere.  If that slow upwards trend in wheat continues, it is fine, we are capturing that move.  We have a bit of risk on the downside, we do not want wheat to turn around.  But as long as wheat moves slowly - no sudden spikes in prices - it is all fine, it gives us plenty of time to realise the direction it goes and to get out of the trade.

The position involves four different positions.  My suggestion is try to set it up outside regular trading hours.  Prices are more stable, just leg into your different positions.  Please carefully look at the strike prices of your options relative to their underlying contracts, they are quite critical in this setup.  If you have a copy of the OE, I suggest setting up the trade in OE first, then experiment a bit with shifting individual strike prices up or down.  You will get a feel for how that influences your trade position, the price-area under which you are capturing your profit.

24

Trading Ideas using Options Explorer / Re: British Pound (BPJ19): 28 March 2019

« Last post by TradingAdmin on March 28, 2019, 10:05:40 am »

For the more advanced traders, here is an alternative for employing exactly the same strategy.  (If you have the OE, this strategy can be found under your Master strategies, it is called a "SHORT CALL SYNTHETIC STRADDLE").

Note that a Covered Call is exactly the same thing as a Naked Put.  And a Covered Put is exactly the same thing as a Naked Call.  (For that reason when you hear someone talking about  a company that promoted naked option selling and how wrong that is and they should always cover their positions, using covered calls or covered puts - you immediately know the guy has got absolutely no idea what he is talking about - he is actually saying naked option selling is wrong because you should always sell naked, anyway I am diverting)

Our strategy above called for shorting a Call and Shorting a Put.  Since there is more premium in it for us for the Short Call than for the Short Put, we convert the Short Put into a Covered Call.  A Covered Call is shorting a Call and then buying the Futures.  Thus we now Short a Call, then Short another Call and Long the Futures (our second Short Call / Long Futures is a Synthetic Short Put).  We end up with the same result:



The risk graph and the position graph shows us the same result, yet the positions table show we went Short two Calls and Longed the Futures.

WHY WOULD WE RATHER DO IT THIS WAY?
Because of the flexibility it gives us for entering the position!  We know the end result of what we'd like to setup.  We can monitor the BP intraday on say a 15 minutes chart.  When we see a 1-2-3 low and a break above the #2 point, we long the futures.  We now ride up the futures until it looks like turning around or levelling out.  Then only do we short the two Calls.  Since the price has moved up, the short calls will trade at considerably higher prices and we will receive much more premium when shorting them - which will have  huge impact on our overall profitability in the trade.

Likewise, say the pound is trading down intraday.  We short the two Calls and wait, let the BP drop in price.  As soon as we see prices flattening out, or looks like they are turning around, only then do we Long the Futures.  We achieved exactly the same result - we have captured much more profit into our trade position, giving us a much higher chance of success!

25

Trading Ideas using Options Explorer / British Pound (BPJ19): 28 March 2019

« Last post by TradingAdmin on March 28, 2019, 09:46:50 am »

This trade brought to you courtesy of Brexit.  The British Pound is trading at extremely high implied volatility.  The Pound itself is stuck in a trading range for the past four weeks:



Will the general uncertainty continue for another week?

Well, we have a short term opportunity here to make some profits.  The April Options contract expires in 9 days time (two of those days are this Saturday and Sunday, thus only 7 trading days time).  We trade it using  Short Straddle (we sell an ATM Call and Put)



Graph on the right - look at the extreme wide range of prices under which we are capturing the BP - (130.5 - 135.5), well beyond the extremes of the trading range into which the pound finds itself.  Look at the position graph left - because of the high volatility, these options are trading at exorbitant prices, our profit potential is at $1,600 !  For just a 9-day trade.

This will be the profitability line on Monday, this Monday, 1st of April, 4 days into the trade:



We'll be profitable anywhere from 130.5 to about 135.3; maximum profit already sitting above $500!  That is not bas for a weekend.

BP is jitterish though, monitor it through the day, if it breaks out of the trading range, get out of the position.

26

Trading Ideas using Options Explorer / IMPORTANT: All trades

« Last post by TradingAdmin on March 26, 2019, 01:41:40 pm »

Anyone following any of these trades who want to use some of this information for own use:

You are welcome.  But please note that these are not trading advice.  If you do make use of any of this information in your own trading, you do so entirely at your own risk.  These are simply examples of how we use OptionsExplorer to identify trading strategies on certain target markets and how we implement those strategies, and the results we got from implementing those trading strategies.  It is a track-record of trades, updated live as the market changes; examples of trades using OptionsExplorer.

Anyone wanting to follow any of these strategies or try to implement some ideas, if you like what you see, need to understand:

• I've got an advanced piece of software that allows me to make last minute modifications to trade ideas before implementing them.  Sometimes the advice from this software is to STAY OUT.  (I have on many occasions identified a trade, just to, the next day when I try to implement the trade, find that options prices are not what they were the previous day!!  When I analysed the position an option might have traded at $350.  Today that same option trades at $170, less than half; I will use the OptionsExplorer to try and find why, and to re-analyse, many times the answer might be that the risk is now too high, rather abort the strategy.  Sometimes I may need to adjust the strike prices of my options, thus the final position you see me trading at might be different from the initial strike prices in the trading plan, due to last minute changes necessitated when the market opened)
• You need at least a basic understanding of how options work!!  You cannot trade in an instrument that you have zero understanding of the instrument you are employing!  (For example:  I cannot tell you this is the price of the option and you should buy it at this price of the underlying.  You cannot set a break order or a stop order on an option- the market will kill you.  The price of an option is determined by a willing buyer and willing seller, who negotiates a price during the day.  After hours, if you have stop orders or stuff in the markets, guys can and will do crazy things!  People have options pricing models to allow them to determine a "fair value" for the option - such as the Black-Scholes Options Pricing model, but that is by no means the only model.  The model only gives you an indication of "what is a fair value", it is not to say the option will actually trade at that fair value.)
• You need an understanding of what drives option prices.  People's emotions plays a very large part.  Time plays a part.  The price of the underlying plays a part.  (For example our Corn trade:  Our trading strategy called for us to go short two call options and long  futures.  Basic understanding would have told you that Shorting an option, selling it, the more money you can get for the option when you sell it, the better it is for you.  Since these are Call Options, their value Increases as the price of the underlying increases!  Thus it is much better to first wait and see what the price of Corn is doing.  If indeed it does break out through the #2 point as contemplated, then waiting to sell those calls until Corn trades at a higher price is definitely to your advantage!!  It is better to be patient, wait for the right moment and only then sell the Call options.  Likewise the futures is to your advantage the lower you buy it - "buy low sell high"!  In other words a basic understanding of what you are doing would have helped you to leg into the trade in such a way as to derive maximum advantage from the trade!)

The above are general things you need to know, and you need to understand, to allow you to build a successful trading business - you cannot just blindly follow a trading idea without any knowledge of what you are doing!  These are not trading advisories, these are trading ideas.  These are not rules, which you have to follow, they are guidelines, they form a trading plan.  Any additional information or skills that you have to use to your advantage must be used to setup a trade for (1) which you feel comfortable with, (2) that fits your risk profile and (3) that has the maximum chance to work out successfully for you.

No one else can do this for you - it is your account, you enter certain positions at your own risk.  You need to understand the position you enter, enter it in such a way that maximise your chances and you need to manage that position to the end.  Ultimately you are accountable for what happens to your account, no one else will take that responsibility.

And therefore the trades posted here does not constitute advice on what you should or should not do.  They are examples of what we are doing, with examples of how we implement the ideas and how we manage the trades that we have entered.  You are welcome to make use of the information supplied for your own benefit, if you so inclined, but you do so entirely at your own risk

27

Trading Ideas using Options Explorer / Re: Corn (ZCK19): 21 March 2019

« Last post by TradingAdmin on March 26, 2019, 10:03:34 am »

Update:  Tuesday 26 March 2019



Profit of $327 !!.

This is a very interesting position!  We have made $327 in just 5 days on a margin posted of around $1600.  This is a return on investment of (327/1600 x 365/5) = 1492 % annualized.

So now the question:  Do you want to hold on for 30 more days, taking the risk in Corn, for possibly increasing your profit from $330 to around $600; or do you take the money and search for the next trade?  I cannot answer this question for you.  I do know what I will do.

28

Trading Ideas using Options Explorer / Re: Cocoa (CCK19): 15 March 2019

« Last post by TradingAdmin on March 26, 2019, 09:52:53 am »

Update:  Tuesday 26 March 2019



I am already out of this trade (at $90).  If you did decide to hold on and went through a nervous couple of days you will be a happy trader.  The position is sitting on $320 profit and are perfectly positioned to give you upwards of $900 over the next 10 days!! 

Not bad at all.  At this point just hold on and watch the money rolling in..

29

Trading Ideas using Options Explorer / Re: Cotton #2: Friday 15 March 2019

« Last post by TradingAdmin 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.

30

Trading Ideas using Options Explorer / Re: Coffee (KCK19): 15 March 2019

« Last post by TradingAdmin on March 26, 2019, 09:37:46 am »

Update:  Tuesday 26 march 2019



We are sitting on $420 profit at the moment, which is really not too bad.  On the positiongraph (left) we are sitting on the pink line.  The green line will be the position next week Monday.  If Coffee continues down in price, there is really no further benefit in holding onto the position, then you might as well take the profit off the table. 

In order to get us to the $800 target region, we need Coffee to correct upwards, but not too fast.  You can see a move back to around 98 by next week Monday leaves us at the same place we are now - we would really like for it to take its time if it would like to correct a bit up. 

For the moment just hold, we'll monitor it daily..  Exit on any sharp moves.

(On the other hand, there is nothing wrong with taking the profit while it is on the table)