If you are a trader, you need volatility in the markets to reach your goals. The toughest market to trade is one that sits in a tight range, and stays there without much movement in either direction.  A stagnant market can be taxing on one’s mind, and if you are participant, it can frustrate you and grind on you emotionally as well. When we are frustrated and make emotional decisions, they usually don’t work out well.

On the flipside, a highly volatile market can be challenging as well. While it gives us many opportunities for entry, it can also test your risk parameters very quickly. Professional traders often have the ability to thrive in such conditions. Back when floor trading was at its peak, many individual fortunes were made this way. I can think of many floor traders I know that can point to the “one day” that changed their careers forever. Highly volatile markets are much more challenging for the novice trader or someone looking to “play the market” every once in a while.

Options with defined risk can give one the ability to still participate, but within their own parameters. Over the last week we have seen gains in the U.S. Dollar index knocked down in strong fashion, and crude oil making a bounce off its recent lows, but with some large swings along the way. The Fed’s recent hint that higher interest rates aren’t right around the corner has some traders questioning the U.S. Dollar’s recent muscle flexing. While the U.S. Dollar has weakened, crude oil, along with the Euro and Canadian Dollar, has recovered from its recent low. Nothing runs in one direction forever, so some sort of pull back on the U.S. Dollar should come as no surprise. I view this as short term move rather than a reversal in trend.

The Trade

With the view that the U.S. Dollar will regain some strength and continue to move higher, I expect the Canadian Dollar to move back down.

  • I like buying the June Canadian Dollar 7800-7600 put spread at 30 points ($300.00) or better.
  • Our risk is defined to the cost of entry plus fees and commissions. 
  • Full value of the spread at expiration (06/05/15) is $2000.00 (the difference between the two strike prices). I am setting an initial target exit of 65 points.
  • If you are able to trade multiple contracts, I would look to scale out in 20 point intervals.

If you have been watching any of the college basketball this month, it doesn’t take long to figure out what they are all playing for; the chance to be the best.  Sometimes the bigger goal is hard to fathom, even harder to accomplish without a shorter-term goal. The best teams and coaches figure out quickly to only worry about what is front of you right now, win, and come back and try it again. Successful traders have the same goal – take care of today and come back and do it again. Think of trading like teams think of a tournament, survive and advance.

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For those interested, Walsh Trading is holding our weekly grain webinar Thursday March 26th at 3 p.m. 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.