Recent Posts

41

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

« Last post by TradingAdmin on March 15, 2019, 11:43:09 am »

Coffee is another market I've been watching closely, it came down hard and has now turned sort of flat.  Maybe it will turn back up, but how long will it take to do that?  However trading it with options give some ideal opportunities to hedge the risk in the position.

We trade it using a similar idea as the Cotton trade posted earlier - but this time using Call options.  We short TWO (2x) Call Options just above the market, then hedge the position with a Long Call just one strike price higher, but in the next contract expiry month (JUN'19)



We cannot loose on the downside, thus Coffee continuing its downwards bias, we take home about $200 on this trade.  Note how Coffee will have to turn up rather steeply to put the position in danger.  If somehow it does that, we can manage the trade by simply buying back one of the Short Calls, turning the position into a Calendar Spread, very low risk and capturing profit if Coffee is trading up / level.

42

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

« Last post by TradingAdmin 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

43

Commodities Trading / Re: The Options Advantage

« Last post by TradingAdmin on September 07, 2018, 09:17:38 am »

It boils down to your personal make-up, your ability to handle the psychological stresses in trading.  How far are you willing to let it slip before you get out...

Remember that you entered this trade thinking that the commodity will move up.  If it does not move up, it moves sideways instead, or worse, it moves down; then you are wrong about the trade and you should get out!!  What is the key to success as a trader..?  Keep your losses small ?

If you are wrong, and this commodity moves down in price, how long do you wait before you admit you are wrong and get out!?

With the original currency trade, if you were wrong about price direction, you would get into trouble really quick.  With the option you bought yourself some room if you are wrong... (1) you will take a smaller loss, (2) you have more time to realise that you are wrong.  The fact remains however that you ARE WRONG and should get out.


However that said - how many times have you taken a trade thinking the market will move up.  Then the market moves up just a couple of ticks, not enough to take a profit, then it goes down and down until it hits your stop-loss.  And then, just after hitting your stop and you are out, it turns around and make this really nice big up-move, exactly like you thought it would.  You want to kick yourself - this is the move you've been waiting for - "maybe my stop was not far enough away?" - it is as if the market knows you are there, as if it just waits for you to enter, then enter you into the trade, and then drops, until you get out, and then it does its thing.  It goes up all the way, but you are not part of it - instead you have eaten a loss???   

The option strategy does allow you to stay in the trade longer - your stop-loss, now a mental stop-loss, can be further away, you have time to wait, let the market make its false-move, and then catch the up-move.  However, if you ARE WRONG and the market does continue to drop, you owe it to yourself to GET OUT!!  You will get out with less of a loss than with the straight futures trade, and you did give the market time to show its true colours - but if you are wrong, just get out, it is not your trade any more ..

44

Commodities Trading / Re: The Options Advantage

« Last post by Selvage on September 04, 2018, 03:41:08 pm »

Got a question, received via email, from Jim:

You made the most out of these weight loss pills for men and stressed the importance taking less risk deep out of the money options to taking more risky deep in the money options for more money (premium). You made an example of the premium of $1200 on the deep in the money option, and maybe four options at $285 each for a lesser risk (deep out of the money options) - which added together still comes to almost $1200 that you get from the more risky option.

My question to this way of thinking: how much margin will you have to put aside for one option that has the potential of giving you $1200? And also how much margin will you need to put aside for four options that are less a risk, and has the potential of giving you about &1200 all combined? Will the margin be the same.

Wont the exchange demand a bigger margin for less risky four options - because they are four?  Please explain.

Option 2 sounds a lot more appealing to me. The risk in the option 1 seems just too high for my taste. What do you think?

45

Commodities Trading / Re: What happens when the market gets emotional?

« Last post by Atwater on February 21, 2018, 12:47:39 pm »

Very interesting read indeed. Makes you realize how complex trading really is. There's so much to account for.

46

General Discussion / Re: First Topic...hmm, I like that

« Last post by BlaineCas on September 23, 2017, 06:47:48 pm »

Hi Guys,

I would like to introduce the bingo views site myself.

My name is Karsten. I am based in Berlin.

I am a Forex, Futures and CFD-Trader. I like Options too, but currently I don't trade options.

Hi Karsten, how is the trading going lately?

47

Introducing Options Explorer / Re: Overview

« Last post by TradingAdmin on February 14, 2017, 06:33:33 pm »

Selecting a Market - by IV

This is a commodities Heat-map:


(Before we continue, note that the colour scheme is customisable by the user - thus you are free to use whatever colours suits your style for the heat map)

I mainly focus on SELLING options.  Thus in my colour scheme,

• GREEN means - good opportunity to SELL, thus HIGH IV
• RED means - danger, LOW IV, stay away, not good opportunity to SELL  (however may be good to BUY, if you are into that)

What this feature does, is it rates all of my commodities for me on a scale from HIGH IV to LOW IV.  At one glance I am able to select a market based on whether the commodity's options at the moment are priced high or priced low (please note that this is high or low in terms of IMPLIED Volatility (IV - where the options currently are trading at) and not in terms of Historical or Statistical Volatility)

This selection strategy implies I have certain favourite trading strategies, based on the IV, that I like - and I am selecting my market based on this condition - I need (in my case) a high IV for that is where my strategy works best (selling options).  I can see that high IV markets are Lumber, Oats, Feeder Cattle, Cocoa, Cotton, Copper.  Moderately high markets would be Wheat, Gasoline, Hogs, Heating Oil and some financials..  Coffee and Crude Oil are really cheaply priced if I want to consider buying options.

On top of this information, the points themselves give me some additional information for each commodity.  For example with Cocoa and Cotton I can see that the options above the current price are priced high (in other words the Calls) while those below the current price are priced low (the Puts), while with for example Wheat, both the Calls and the Puts are priced high.  In other words the market is pricing in extra risk to the upside for Cocoa and Cotton!!

From here I may right-click on my points on the heat map, which will give me previews (charts) of my commodity markets:



And from here I may select a market to trade in.  Note how my commodity graph background colours contain the same IV information - those with a green background are HIGH IV markets, the blue is a MODERATE IV market.  For example Cotton is in an established uptrend, the last price movement just took out a Rh (previous high) on my price chart.  If I have a trading strategy for a Bull market and High IV, this is a potential market to analyse...  (I may right-click on the graph and from there open the Options Analysis tool - this will take me directly to my powerful Analysis functions)

48

Introducing Options Explorer / Overview

« Last post by TradingAdmin on February 14, 2017, 05:15:17 pm »

What is it that we want to do trading options, what are we after, what is the goal, what do we want to achieve?  From personal experience there are a number of key requirements:

• I want to be able to select a market.  How do I know which commodity contract to look at?  Where do I find my next trading opportunity?
• Next, I need to be able to create a trading plan.  There are a whole lot of actions involved in this:
  
  • Select a trading strategy
  • Analyse the market
  • Plan my trade (how much profit, how much risk)
  • Optimise my trade - that is simulate different market conditions and plan how to handle each (mitigate the risk)
• Monitor (or track) my trades - daily progress

Options Explorer assists me with all of these actions.

• Selecting a market:
  There are in general two methods. 
  
  • The first is we approach this from a Volatility point of view.  We have certain favourite market strategies depending on the volatility (Implied Volatility - IV) that the commodity is trading at.  Thus we use the IV as a guideline to select a market
  • The second is that we have certain rules or certain conditions and we filter tradable options by, applying our rules to the market to select the options, and thus the futures, that we would like to investigate
• Select a Trading Strategy:
  Again we have two ways
  
  • We ask Options Explorer to suggest a strategy that will work in this market condition and create us a trade complying with this strategy.  We then optimise the strategy until we are happy with it, or
  • You create your own trading strategy.
• Analyse and Plan:
  There are some powerful tools included to allow us to analyse the market, view where the big players in the market has positioned themselves, find the prices that the options are trading at and plot for us our position, the profit we'll make, where we will make that profit (what does the market have to do), where will we take a loss, how big is the potential loss, etc.
• Optimise:
  Options Explorer allows me to simulate the likely price movements going into the future and allowing us to add more trades if the market moves like that.  For each perceived market position we are able to add positions onto our original position, or sell out of certain individual trades, to analyse and plan how we will handle each possible scenario.  In other words it allows us to create a detailed Trading Plan
• Monitor:
  We are able to save all our trades, we are able to create simulated accounts (unlimited) and we are able to add saved trades to our simulated accounts.  We may then open these simulated accounts on a daily basis as more information becomes available to monitor or check the performance of our trades against what the market did.

I order to offer us all this functionality there are a few supporting functions that we need to attend to - such as our data imports and general commodity information that we may need to update..

Over the next couple of posts, we'll look at each of these software features in a bit more detail

49

General Discussion / First Topic...hmm, I like that

« Last post by kagels-trading on February 13, 2017, 05:58:13 pm »

Hi Guys,

I would like to introduce myself.

My name is Karsten. I am based in Berlin.

I am a Forex, Futures and CFD-Trader. I like Options too, but currently I don't trade options.

If you have no problems reading German, please check out my trader blog:

https://www.kagels-trading.de/blog/

Good luck for all of you guys. Happy Trading!

50

Frequently Asked Questions / The software system authentication on this machine failed... Message

« Last post by TradingAdmin on February 02, 2017, 09:37:45 pm »

When you start your software, you get the following message:



Haa..!

This is the copy protection message..  You should not get this message. 

You can get it:

• During the installation process:  If you do, then see the Installation Manual, Section 4.1 - Windows Write-Access Security, page 34.  You failed to grant write access to your installation folder and its sub-folders before you attempted the installation.  This may create all kinds of problems.  The best advice is to start again.  Delete (remove) MySQL, uninstall OptionsExplorer, then re-install OptionsExplorer and re-install MySQL.  Then PLEASE follow the manual BEFORE you try to continue.  Specifically you need to set the Wndows Security and the Database Security.  Thereafter you may run the software and it will do the rest for you
• Any time after you Activated the Software:  This is the copy protect failure - the software deactivates on ANY ATTEMPT to try to copy it to another computer.  If you did, please refrain from trying to do this, you will invalidate your software (as you have experienced).  If you need to install on a second machine, please just enquire about it.  If you did not, OK, you may re-activate and continue, if it happens frequently we may have to investigate what goes wrong on your system...   You need to re-activate, thus click "OK", then when the software launches, on the main menu select "System | Settings".  Go to the "About" tab.  Send the new Machine Key that the system generated to your vendor (party that initially provided you with an activation key).  They will be able to detect from the new machine key what you did and may ask some questions, but in general it s not a problem, you will just get a new activation key and may continue as if nothing happened