When we look at markets for opportunities experienced traders generally have a time frame in mind. Floor traders generally trade in short time frames, looking to take advantage of market moves happening anywhere from a few minutes to a few hours. Others look for setups to get in ahead of a market correction and ride the wave for a few weeks. Some long term traders will put on positions that may even be a few years from expiration.
One of the great features of futures and options is the ability to manage risk within a set time frame. Farmers and producers have been hedging crop prices since the inception of the Chicago Board of Trade. Those with exposure to interest rates have the ability to trade Eurodollar futures ten years out from the current date. If you are invested in the stock market you can do some hedging of your own trading equity index futures.
STOCK BULL IS FIVE YEARS OLD
As we approach the end of the first quarter, the S&P 500 seems a bit jittery after putting in a new high on March 7. I’ve previously commented on a pending reversal of the current bull market. If you take a long term look at the market, we just hit the five-year anniversary of the post financial crisis low of 667 in the S&P 500. In macro terms you could say the market has been in a bull market for five years. If you take this view, you also know that there have been pull backs along the way.
E-MINI PUT SPREAD
I think the market is setting up for another pullback heading into the second quarter. I like buying the April E-Mini S&P 500 1850-1800 put spread at 10 points ($500.00) or better. This is a bearish play for the shorter term, April options expire on 4/17/14. Risk is limited to cost of entry plus fees and commissions since we are long premium. I am looking for a target exit of 20 points, if the market doesn’t move our way I am trying to keep a loss to 5 points or less.
FLOOR TALK
Trading takes time and dedication to be successful. On the trading floor I often heard the phrase “if it was easy everyone would do it.” Hard work, preparation, discipline, and consistency are crucial if you want to be successful in your trading. If you want to get lucky, you are better off chasing leprechauns.
WEBINAR
For those interested Walsh Trading is holding our free weekly grain webinar series this Thursday March 13th at 3pm 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.
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.
