As a floor broker I find it worthwhile to identify points at which the market, any market, seems vulnerable. Such vulnerability may be cause for trading opportunity, however mostly it benefits short term trading. Longer term trades may also benefit from identifying those places where a market is vulnerable, but the size of the move should also be larger for positions held overnight in these markets.
What are helpful features of vulnerability? Chart points such as highs and lows obviously, as well as moving average levels, but beyond those you might also consider as a market approaches option expiration those strike prices that contain significant open interest. Countless times we have see a shift in a market to move towards a strike price.
Currently the coffee market is approaching option expiration and while earlier this week it appeared as if 140 would be the better candidate, yet low and behold here we are the day before expry trading 135….Now that is an example. The point being that whenever a market approaches expiration, and coffee isn’t there until tomorrow afternoon, it may always be a good idea to consider the vulnerability of prices reaching out for a strike price….and usually one that isn’t as obvious offers specs a cheap play and those seeking a hedge a reasonable opportunity.
