Trading The Jobs Number: Define Your Risk
When I worked on the trading floor of the CME, the first Friday of the month meant one thing; Unemployment. That was short for the batch of numbers released by the Labor Department each month. Everyone working in the Eurodollar pit would be glued to the boards as the numbers were released at 7:30 AM Central. The data could cause a fast market in either direction, or sometimes both. Big money could be made or lost in a flash.
Trading numbers or news releases is not something I recommend for the non professional trader. One never knows how markets can react to news. You might think a number is expected to be “positive” so the market will rally. If that number is positive, but not positive “enough”, don’t be surprised to see that market turn bearish. A lot can happen quickly, especially these days in the electronic trading world. Markets can swing back and forth in large moves. The volatility is not for everyone.
If you feel like you want to trade a number, I think you better define risk. Buying an options strangle will define you r risk on entry. You can’t lose more than what you pay for the options. There is still some risk, but you know what your potential losses could be ahead of any wild ride I n the markets.
I like buying the May E-Mini S&P Week 1 2025/2065 strangle at 6 points ($300.00) or better. We are looking for the market to trade away from the current level need 2045. By buying the 2025 put and the 2065 call at the same time, we will be able to take advantage of a move in either direction. These options expire on Friday May 6th, so this is a short term trade. I am setting an initial target exit at 15 points. If you enter this trade, I would be sure to have your target exit working ahead of Friday’s jobs data. If the S&P does not see much movement from current levels, I would try and get out for a 2 point loss.
For those interested Walsh Trading is holding our weekly grain webinar Thursday May 5th at 3:00 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.,
jweyer@walshtrading.com
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.
