The volatility in the crude-oil market over the last few months makes many people hesitant to participate. The wild swings in short time frames can test any trader’s will power to stay with their position. Buying options can define risk, but the rewards don’t come as quickly all the time.

The Canadian Dollar is often viewed as a commodity currency. What that means is that movements in the Loonie (as the Canadian Dollar is also known) can be effected by the price of the commodities that are big parts of their economy. Canada is a large oil producer, and it is the top importer to the U.S. The price of crude oil (pegged to the U.S. Dollar) is going to have an effect on the relationship between the U.S. Dollar and the Loonie.

Sometimes, when I am looking for a bit of a longer-term play in crude, I look to the Canadian Dollar. The Loonie doesn’t move with the same volatility as crude oil, and the option premium is a bit cheaper as a result. I think the Loonie has the possibility of trading down from the current level of 80.00 to 75.00 in the coming months. The combination of lower crude prices and lower interest rates in Canada has me looking for a bearish play.

The Trade

  • I like buying the April Canadian Dollar 77-75 put spread at 25 points ($250.00) or better.
  • Full value of the spread is $2000.00 at expiration on April 2nd.
  • Risk is defined to the cost of entry plus fees and commissions.
  • I am setting an early exit target of 75 points for a 50 point gain. If you are able to trade multiple contracts I would look to scale out in 20 points increments.

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For those interested, Walsh Trading is holding our weekly grain webinar Thursday February 12th at 3 PM Central time. Please click here for details.

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.