Shakeouts in the equity indices is par for the course for this time of year. Sell offs are often expected, but it is still hard to predict when they will occur and how big they will be. The volatility can put traders on edge, but it also presents opportunities.
Trading volatile markets can be challenging, especially when it is hard to find trends or direction. I often look to use a strangle to trade markets that are moving back and forth, without a clear direction. Selling a strangle is basically saying we think a market may move, but will not reach the levels of our chosen strikes.
I am going to use the weekly options on the E-Mini S&P 500, specifically the October Week 4 options. I like selling the October Week 4 2060/2170 strangle (2060 put and the 2170 call) at 10 points ($500.00) or better. These options expire on October 28th, so we have just over two weeks to be in the trade. I am setting an initial target exit at 2 points. If the market moves decides to make a directional move, I would look to keep a loss to 5 points. Be sure to check the margin requirements to see if your account is well suited for the trade..
For those interested Walsh Trading is holding our weekly grain webinar Friday October 14th at 2:30 PM 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. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.
John Weyer
Director of Commercial Hedging
Walsh Trading Inc.,
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.
