Report days can be tough volatile markets to trade. They can also present opportunities. Successful traders can try to take advantage of the opportunities if they are good risk managers.

KEY PLAYERS
When it comes down to it, there are basically two types of market participants, hedgers and speculators. Hedgers fall under the risk management umbrella. The markets are a resource for hedgers to help define or manage risk for their everyday business. Hedgers come in many shapes and sizes from large corporations, to farmers, and small individually owned businesses. If you don’t fall into the “hedge” category, you are a speculator.

EYEING OPPORTUNITY
As speculators we are always looking for opportunities. We also like to quantify risk when analyzing those opportunities. Buying an options strangle gives us the ability to define our risk when we enter the market. The strangle involves buying a put and a call as a strategy when we think the market may be ready for a large market move, but are not quite sure of which direction. In my opinion, this could be a trade to enter ahead of Friday’s employment numbers.

THE TRADE
I like buying the March E-Mini S&P 500 1560/1520 strangle. Currently the March E-Mini is trading near 1540, so the strikes are about 20 points out on both sides. By buying the 1560 call and the 1520 put, we are trying to take advantage of a move in either direction. Look for an entry price of 6 points ($300.00) or better. This is a short term trade, and I am looking for a target exit of 10 points or better from entry. The risk on the trade is the price paid for the puts and calls (premium) plus all commissions and fees.

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 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. 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.