One of the things about trading futures and options that I have always liked is the opportunity to be a contrarian. You may have heard the phrase the trend is your friend (maybe even here), but sometimes going against the consensus can be beneficial. Futures and options give traders the opportunity to go against the grain while at the same time being able to manage risk. Some trading strategies even give us the opportunity to fade our own positions.
Any economic data is being watched closer than ever by analysts and market participants. We are five years removed from the great economic meltdown, and everyone from elected officials to Joe Six Pack is looking for signs of a recovery. Most of us are aware that economic data is going to dictate how the Federal Reserve plans its next move in relation to stimulus plans and changes in interest rates.
After a great run in 2013, the equity markets have seen a bit of up and down since the start of the New Year. The S&P 500 has recently flirted with the contract highs put in at the end of 2013. I think we can touch those levels again (near 184), but not after drifting lower first., I like selling the March 1860 call and buying the April 1860 call at 8 points ($400.00) or better. This strategy is known as a long call calendar spread. We are looking for a near term decline in the S&P 500, and then a move higher in the longer term. The maximum risk is defined to the cost of entry plus fees and commissions. The March options expire on 3/21/14, if the E-Mini S&P is trading below 1860 that side of the trade will expire worthless and we will be left with the long April 1860 call. I am setting an exit target of 20 points or better.
Some of the best traders see and find opportunities where others don’t. Often they are taking a risk with a high reward. Sometimes the risk it takes to go for the gold can end up costing a spot on the podium, and that’s all right. If you are careful with your risk management, you should be able to enter the competition again.
For those interested Walsh Trading holds weekly grain webinars on Thursday’s at 3pm central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Click here to register.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
