In todays short 4 minute video we explain exactly what we mean by a "short gold position." It does not mean we are bearish on gold, however the scenario we point out in this video could make money by being short gold and long another important market.
The video points out what the scenario is, and which market you should be long in, against a short gold position. This is an interesting twist and a video you shouldn't miss.
As always our videos are free to watch and there is no registration required. Please feel free to re-tweet this video on Twitter or share this video on Facebook. Also take a minute to leave a comment and let us know what you think about the video.
Share
Wednesday, February 23, 2011
Monday, February 21, 2011
Dian Chu: A Tale of Crudes.....Anybody Got A Big Rig?
From guest blogger By Dian L. Chu at the EconForecast......
On Wednesday, Feb. 16 Israel said Iran is sending two warships into the Suez Canal on way to Syria, and that the action is considered a “provocation.” Due to the long history of bad blood between Israel and Iran, this very possible scenario was enough to even send the bear infested NYMEX crude oil futures volume surging midday.
West Texas Intermediate (WTI) on Nymex rose to just below $85, while Brent crude on the ICE futures exchange spiked $2.17 higher to $103.81 a barrel, a 29 month high, widening the WTI Brent spread to a new record near $19.
High Middle East Tension
Then on Friday, Feb. 18, AFP reported that permission has been granted for Iranian warships to transit the Suez Canal into the Mediterranean. Canal officials say it would be the first time Iranian warships have made the passage since the 1979 Islamic revolution, while Israel has labeled the Iranian action as "hostile' and said Israel was closely monitoring the situation.
As the worst Israel-Iran conflict scenario failed to materialize, at the close Friday Feb. 18, Brent crude oil for April settled at $102.79 while WTI for April delivery rose to $89.71, narrowing the spread to $13.11.
Crude Glut at Cushing, OK
Since WTI is lighter and sweeter crude which requires less processing, it has historically enjoyed a $1 – $2 a barrel price premium to Brent crude oil. According to Bloomberg, the WTI Brent gap averaged only 76 cents last year.
However, WTI’s premium disappeared about a year ago and in recent days it has been trading at more than a $10/bbl discount to Brent mainly due to rising inventory levels at Cushing OK, the delivery and price settling point of Nymex crude futures.....Click Here to Read The Entire Article and View Dian's Charts.
Share
On Wednesday, Feb. 16 Israel said Iran is sending two warships into the Suez Canal on way to Syria, and that the action is considered a “provocation.” Due to the long history of bad blood between Israel and Iran, this very possible scenario was enough to even send the bear infested NYMEX crude oil futures volume surging midday.
West Texas Intermediate (WTI) on Nymex rose to just below $85, while Brent crude on the ICE futures exchange spiked $2.17 higher to $103.81 a barrel, a 29 month high, widening the WTI Brent spread to a new record near $19.
High Middle East Tension
Then on Friday, Feb. 18, AFP reported that permission has been granted for Iranian warships to transit the Suez Canal into the Mediterranean. Canal officials say it would be the first time Iranian warships have made the passage since the 1979 Islamic revolution, while Israel has labeled the Iranian action as "hostile' and said Israel was closely monitoring the situation.
As the worst Israel-Iran conflict scenario failed to materialize, at the close Friday Feb. 18, Brent crude oil for April settled at $102.79 while WTI for April delivery rose to $89.71, narrowing the spread to $13.11.
Crude Glut at Cushing, OK
Since WTI is lighter and sweeter crude which requires less processing, it has historically enjoyed a $1 – $2 a barrel price premium to Brent crude oil. According to Bloomberg, the WTI Brent gap averaged only 76 cents last year.
However, WTI’s premium disappeared about a year ago and in recent days it has been trading at more than a $10/bbl discount to Brent mainly due to rising inventory levels at Cushing OK, the delivery and price settling point of Nymex crude futures.....Click Here to Read The Entire Article and View Dian's Charts.
Share
Thursday, February 17, 2011
Technical Formations You Shouldn't Miss
Experienced traders have been using this particular technical formation for many years and it continues to produce profits for those who can spot it, and better yet, take advantage of it.
In this new short video we are going to share the market, the pattern, and a price projection where we think this market is headed based the MarketClub Trade Triangle technology.
We hope that this educational video will help you spot this very same technical formation in the future. The video is extremely short and will only take a few minutes of your time, however, the lesson is priceless.
As always our videos are free to watch and there are no registration requirements. Our only request is that you tell your friends about The Crude Oil Trader by Tweeting and sharing this post on Facebook and other social networking sites. We would also enjoy hearing from you, so please feel free to comment here about this video.
Share
In this new short video we are going to share the market, the pattern, and a price projection where we think this market is headed based the MarketClub Trade Triangle technology.
We hope that this educational video will help you spot this very same technical formation in the future. The video is extremely short and will only take a few minutes of your time, however, the lesson is priceless.
As always our videos are free to watch and there are no registration requirements. Our only request is that you tell your friends about The Crude Oil Trader by Tweeting and sharing this post on Facebook and other social networking sites. We would also enjoy hearing from you, so please feel free to comment here about this video.
Share
Tuesday, February 15, 2011
Do You Know Where to Find our MarketClub Webinar Archives?
Here is a link to our latest webinar from February 9th...."Strategy Trading Webinar"
Here is a link to our "Upcoming Webinar Page". It will update with the latest webinar and information so you can continue to use the same link for your users for multiple webinars. It also has a list of archived webinars so that users can see all past webinars.
Share
Monday, February 14, 2011
Just When the Bears Think They are Home Free, Mr. Market Reminds Them Who is in Charge
While it may be bear season in the equity markets as Mr. Market continues to punish the ursine, the oil futures market has produced a new home and a new river for eager bears to feed. Mr. Market has had an appetite for S&P 500 bears for several months now. In each instance in which the bears think they are going to get away, Mr. Market draws up his high powered rifle and drops the bears just before they can comfortably return to their caves. Just when the bears think they have escaped and are home free, Mr. Market reminds them who is in charge.
However, Mr. Market’s appetite for oil bears has diminished tremendously over the past week as the U.S. Dollar and geopolitical news coming out of Egypt pushed oil prices lower. Mr. Market’s appetite is always changing it would seem, but right now he is enamored with S&P 500 bear meat and not really that interested in the oily bear meat. The question remains whether his tastes will change in the near term, or if he will continue to turn S&P 500 bears into fodder and steak.
S&P 500
With all metaphors and short stories aside, the price action in the S&P 500 for the past several months has been devastating for bears. Going back to November of 2010, every key resistance level ended up being taken out by the bulls and prices pushed higher and they push higher still. Last Friday’s close pushed prices to new recent highs and in time prices may challenge long term overhead resistance levels. The table below shows just how extended the equity market is:
As can be seen above, 82.73% of all stocks are currently trading above their 200 period moving average and over 68% of equities are above the 20 and 50 period moving averages. While this certainly does not mean that prices are going to rollover, it is hard to refute the conclusion that prices in the equity market are overbought.
A quick glance at the SPX daily chart reveals the recent price action.
It is obvious when looking at the SPX daily chart that prices are extended to the upside in this bull market run. However, as I pointed out in a recent article the distance between current price action and the 200 period moving average is significant. There is a total of 167.79 SPX points between Friday’s close at 1329.15 and the 200 period moving average at 1161.36. Based on Friday’s closing price a reversion to the mean (200 period moving average) would produce a decline of around 12.62%. The SPX weekly chart is shown below:
It is worthy of note that the May 2008 swing high of 1,440 coincides with the upper band of the rising channel that is obvious when looking at the weekly chart of SPX. While price action may or may not get to SPX 1,440 during this bullish run higher, it is likely not coincidental that both key trend lines coincide at the same price point. The intersection of the long term rising trend lines corresponding with the upper band of the current rising channel and the 1,440 swing high may be something of import, or it might turn out to be nothing. However, it certainly is an eery coincidence on the chart if you believe in coincidences.
I am still convinced that stocks need to pullback at some point if they are to continue higher. Consolidation or a 5-10% correction would likely be healthy for the market and might prove to be a launchpad for another thrust higher in price. From the underlying strength in the domestic market, a correction or pullback will likely be an opportunity to get long barring price breaking down through the lower level of the rising channel located on the weekly chart.
I am not sure that I am going to get involved in the short side if we see bearish price action in coming weeks, instead I will likely be looking for opportunities to get long equities at more attractive prices. Right now risk to the downside appears to be increasing as the S&P 500 continues to probe higher.
Light Sweet Crude Oil
Oil prices surged when Egyptian protests intensified and have sold off recently as President Mubarak has stepped down and demonstrations have turned into nationwide celebrations. In addition, the U.S. Dollar has strengthened considerably the past few days which has also put price pressure on oil. The daily chart of light sweet crude oil futures is illustrated below:
Oil price are hanging onto a key support level by a thread and price action in the coming week could see prices push lower through the support area and an eventual test of the 200 period moving average. I am not considering a short in oil, but I am looking at lower prices as a solid risk / reward long entry. I am going to be patient, but envision building a longer term trade using options to profit from a possible rally after putting in a clear bottom.
Right now, price could hold above current support levels and bounce higher, but I think the more likely scenario is a brief bounce early this week and then a flush out lower running stops and reaching panic level selling. As is customary for my trading methodology, I will be looking to buy into panic selling should that take place, however at this point I am not interested in getting involved just yet. I intend to remain cautious and will patiently wait for a low risk, high probability trading setup to emerge. Until then, I will be watching the price action from the sidelines letting others do the heavy lifting.
Conclusion
While it may be bear season in the equity markets as Mr. Market continues to punish the ursine, the oil futures market has produced a new home and a new river for eager bears to feed. The question continues to remain how long will Mr. Market punish the short traders in equities while rewarding them in the oil futures pits. Mr. Market may be losing his appetite for bear meat in equities and he might just decide to feast on some bears covered in oil. Time as usual will be the final arbiter, but for right now I’m sitting on the sidelines waiting for Mr. Market to tell me his next order.
Just Click Here to Get More of J.W. Jones' trading ideas at Options Trading Signals.Com
Share
However, Mr. Market’s appetite for oil bears has diminished tremendously over the past week as the U.S. Dollar and geopolitical news coming out of Egypt pushed oil prices lower. Mr. Market’s appetite is always changing it would seem, but right now he is enamored with S&P 500 bear meat and not really that interested in the oily bear meat. The question remains whether his tastes will change in the near term, or if he will continue to turn S&P 500 bears into fodder and steak.
S&P 500
With all metaphors and short stories aside, the price action in the S&P 500 for the past several months has been devastating for bears. Going back to November of 2010, every key resistance level ended up being taken out by the bulls and prices pushed higher and they push higher still. Last Friday’s close pushed prices to new recent highs and in time prices may challenge long term overhead resistance levels. The table below shows just how extended the equity market is:
As can be seen above, 82.73% of all stocks are currently trading above their 200 period moving average and over 68% of equities are above the 20 and 50 period moving averages. While this certainly does not mean that prices are going to rollover, it is hard to refute the conclusion that prices in the equity market are overbought.
A quick glance at the SPX daily chart reveals the recent price action.
It is obvious when looking at the SPX daily chart that prices are extended to the upside in this bull market run. However, as I pointed out in a recent article the distance between current price action and the 200 period moving average is significant. There is a total of 167.79 SPX points between Friday’s close at 1329.15 and the 200 period moving average at 1161.36. Based on Friday’s closing price a reversion to the mean (200 period moving average) would produce a decline of around 12.62%. The SPX weekly chart is shown below:
It is worthy of note that the May 2008 swing high of 1,440 coincides with the upper band of the rising channel that is obvious when looking at the weekly chart of SPX. While price action may or may not get to SPX 1,440 during this bullish run higher, it is likely not coincidental that both key trend lines coincide at the same price point. The intersection of the long term rising trend lines corresponding with the upper band of the current rising channel and the 1,440 swing high may be something of import, or it might turn out to be nothing. However, it certainly is an eery coincidence on the chart if you believe in coincidences.
I am still convinced that stocks need to pullback at some point if they are to continue higher. Consolidation or a 5-10% correction would likely be healthy for the market and might prove to be a launchpad for another thrust higher in price. From the underlying strength in the domestic market, a correction or pullback will likely be an opportunity to get long barring price breaking down through the lower level of the rising channel located on the weekly chart.
I am not sure that I am going to get involved in the short side if we see bearish price action in coming weeks, instead I will likely be looking for opportunities to get long equities at more attractive prices. Right now risk to the downside appears to be increasing as the S&P 500 continues to probe higher.
Light Sweet Crude Oil
Oil prices surged when Egyptian protests intensified and have sold off recently as President Mubarak has stepped down and demonstrations have turned into nationwide celebrations. In addition, the U.S. Dollar has strengthened considerably the past few days which has also put price pressure on oil. The daily chart of light sweet crude oil futures is illustrated below:
Oil price are hanging onto a key support level by a thread and price action in the coming week could see prices push lower through the support area and an eventual test of the 200 period moving average. I am not considering a short in oil, but I am looking at lower prices as a solid risk / reward long entry. I am going to be patient, but envision building a longer term trade using options to profit from a possible rally after putting in a clear bottom.
Right now, price could hold above current support levels and bounce higher, but I think the more likely scenario is a brief bounce early this week and then a flush out lower running stops and reaching panic level selling. As is customary for my trading methodology, I will be looking to buy into panic selling should that take place, however at this point I am not interested in getting involved just yet. I intend to remain cautious and will patiently wait for a low risk, high probability trading setup to emerge. Until then, I will be watching the price action from the sidelines letting others do the heavy lifting.
Conclusion
While it may be bear season in the equity markets as Mr. Market continues to punish the ursine, the oil futures market has produced a new home and a new river for eager bears to feed. The question continues to remain how long will Mr. Market punish the short traders in equities while rewarding them in the oil futures pits. Mr. Market may be losing his appetite for bear meat in equities and he might just decide to feast on some bears covered in oil. Time as usual will be the final arbiter, but for right now I’m sitting on the sidelines waiting for Mr. Market to tell me his next order.
Just Click Here to Get More of J.W. Jones' trading ideas at Options Trading Signals.Com
Share
Sunday, February 13, 2011
Has the Yen and Dollar Projection Changed.....What Does the Yen and Dollar Rally Have in Store For Us?
We've been asked by an overwhelming number of readers for Chris's take on the currency markets and we think this is an amazing look he has shared with us today! Most of what you read about the currency markets and Forex trading is thin and lacks value. This is MUCH different...
Over the past few years Forex traders have really had to step up their game in order to continue making money in the currency market. Back in the day before currency trading was main stream, currencies used to trend in a direction for a long period of time with a low level of volatility. But with so many individuals now involved speculating on price action coupled with international concerns in most countries, the once slow and steady currency market now moves like the stock market with large price swings on a weekly and even daily basis.
With currency trading growing at an incredibly fast rate, stock traders have been giving tools to trade currencies using ETFs. If you are familiar with leveraged ETFS then you have most likely seen the huge opportunities (100,200 even 400% gains) which they can provide during major trends. Below are a couple major trends that both Forex and ETF traders should be keeping their eye on.
Japanese Yen – 30 year Monthly Chart
Over the last couple years China has taken most of Japan’s manufacturing, creating some terrible fundamentals overall for the Yen. With a weakening economy and the Yen making a major top in 1995, I feel we could be seeing a 16 year double top forming. This means shorting the Yen for a multiyear correction (bear market). This could generate some serious gains in the coming 2-5 years with very little work.
YCS 200% Short Yen Exchange Traded Fund – Daily Chart Setup
This fund allows stock/ETF traders to play the currency market within a regular trading account. The YCS fund is a 200% leveraged inverse fund, meaning this fund goes up in value as the Yen declines. For example, if the Yen drops 10% in value YCS will rise 20%.
Everyone has seen that infomercial to cook food with the saying “Set-It-And-Forget-It!” Well that’s more or less what this position will be like if we get a setup to buy this fund. This trade could easily last 5+ years with the potential to generate 150% – 400% gain.
US Dollar Weekly Chart Setup
Taking a look at the more common currency “The Dollar”. It has been forming a similar price pattern and is trying to form a base and bottom. The dollar does have one major issue which will most likely cause a breakdown thus an even lower value in the coming year. The problem is that the fed reserve constantly prints money increasing the money supply and devaluing the dollar (quantitative easing).
Currently, the dollar is trading within a large range and is poised for a short term bounce. There will not be any major trends until a breakout of this trading range to either the up or down side.
Major Currency Trends for Major Gains
In short, while playing shorter term trends is exciting and rewarding and keeps us busy on a daily/weekly basis, it is nice to have some long term positions at work which slowly mature into large percentage gains which boost you’re overall portfolio value each year with little work. Both the Yen and Dollar look like there is big potential just around the corner using the buy and hold mentality.
Each year I find 3-5 major opportunities where I can put some money to work, not tie up much capital and if they move 150% or more in my favor then those small investments boost my overall yearly portfolio gains substantially.
I do have another major trend setup forming which I’m calling the “Holy Cow” setup… which could be a real money maker this year. The exciting thing about it is that I have not seen ANYONE talk about this investment in years…
Just click here to get Chris Vermeulen's Trading Setups, Daily Pre-Market Videos, Intraday Analysis and Updates.
Share
Over the past few years Forex traders have really had to step up their game in order to continue making money in the currency market. Back in the day before currency trading was main stream, currencies used to trend in a direction for a long period of time with a low level of volatility. But with so many individuals now involved speculating on price action coupled with international concerns in most countries, the once slow and steady currency market now moves like the stock market with large price swings on a weekly and even daily basis.
With currency trading growing at an incredibly fast rate, stock traders have been giving tools to trade currencies using ETFs. If you are familiar with leveraged ETFS then you have most likely seen the huge opportunities (100,200 even 400% gains) which they can provide during major trends. Below are a couple major trends that both Forex and ETF traders should be keeping their eye on.
Japanese Yen – 30 year Monthly Chart
Over the last couple years China has taken most of Japan’s manufacturing, creating some terrible fundamentals overall for the Yen. With a weakening economy and the Yen making a major top in 1995, I feel we could be seeing a 16 year double top forming. This means shorting the Yen for a multiyear correction (bear market). This could generate some serious gains in the coming 2-5 years with very little work.
YCS 200% Short Yen Exchange Traded Fund – Daily Chart Setup
This fund allows stock/ETF traders to play the currency market within a regular trading account. The YCS fund is a 200% leveraged inverse fund, meaning this fund goes up in value as the Yen declines. For example, if the Yen drops 10% in value YCS will rise 20%.
Everyone has seen that infomercial to cook food with the saying “Set-It-And-Forget-It!” Well that’s more or less what this position will be like if we get a setup to buy this fund. This trade could easily last 5+ years with the potential to generate 150% – 400% gain.
US Dollar Weekly Chart Setup
Taking a look at the more common currency “The Dollar”. It has been forming a similar price pattern and is trying to form a base and bottom. The dollar does have one major issue which will most likely cause a breakdown thus an even lower value in the coming year. The problem is that the fed reserve constantly prints money increasing the money supply and devaluing the dollar (quantitative easing).
Currently, the dollar is trading within a large range and is poised for a short term bounce. There will not be any major trends until a breakout of this trading range to either the up or down side.
Major Currency Trends for Major Gains
In short, while playing shorter term trends is exciting and rewarding and keeps us busy on a daily/weekly basis, it is nice to have some long term positions at work which slowly mature into large percentage gains which boost you’re overall portfolio value each year with little work. Both the Yen and Dollar look like there is big potential just around the corner using the buy and hold mentality.
Each year I find 3-5 major opportunities where I can put some money to work, not tie up much capital and if they move 150% or more in my favor then those small investments boost my overall yearly portfolio gains substantially.
I do have another major trend setup forming which I’m calling the “Holy Cow” setup… which could be a real money maker this year. The exciting thing about it is that I have not seen ANYONE talk about this investment in years…
Just click here to get Chris Vermeulen's Trading Setups, Daily Pre-Market Videos, Intraday Analysis and Updates.
Share
Wednesday, February 9, 2011
USO Options Trade Setting UP.....High Altitude Bombing in Crude Oil
Our regular readers know that we follow options guru J.W. Jones very closely. And what a treat for us today as he gives us a blue print for trading options in the most fluid ETF for crude oil, the USO.
At the risk of stating the obvious, the recent market action in the commodities has been manic with wild gyrations of price in a wide variety of basic materials, metals, and energy. Given these wild fluctuations in price, I thought we could look at an options trade in USO that gives a high probability of success.
In order to give a bit of a conceptual framework for this sort of trade, let me share the way I look at these. Development of precision high altitude bombing during World War II resulted in a dramatic reduction in casualties while inflicting devastating consequences to enemy forces. I view the sort of option strategy described below as the equivalent of high altitude precision bombing. We will extract substantial profit without putting ourselves at high risk of damaging anti-aircraft fire.
As is shown on the daily price chart below, there is substantial support in the region of 35.60-36 provided by a recent swing low and the 200 period moving average.
In selecting the structure of option trades, I usually like to consider the volatility environment in which we currently operate. This is important because a very strong tendency of implied volatility is reversion to its mean. The knowledgeable trader factors this into his trades in order to put the wind at his back as much as possible. Trades can be selected and constructed to benefit (positive vega trades) or suffer (negative vega trades) from increases in implied volatility. As you can see in the chart below, implied volatility is currently in the lower quartile of its historic value for this specific underlying:
Given the current low volatility, let us look at a strategy that gives us substantial profit from an altitude of 50,000 feet and the ability to roll the trade forward for additional substantial profit. This trade is structured as a “ratio calendar spread”. Now don’t go getting hung up on the name, it is simply a two legged trade in which we buy a longer dated in-the-money call and sell a smaller number of out-of-the-money calls. The trade is diagrammed below:
For those getting used to these sorts of trades and trying to form an organizational framework, the trade can be thought of as a basic calendar spread where an additional contract of the long options is purchased. The addition of this extra contract removes the upside limit on our profitability which would exist in an ordinary calendar spread. As is often the case in option trading, this trade can also be thought of as a “first cousin” to a covered call structure where the long in-the-money contracts serve as a surrogate for long stock. I find it helpful to think of the various option constructions as individual members of several different families. Each family has a number of “family traits” that help make sense of the large number of potential constructions available to the options trader.
One of the characteristics of this family under discussion is the “Sham Wow” factor- “but wait-there’s more”. The “more” in this trade is the ability to “roll” the short calls forward as they expire or, more prudently, as they reach inconsequential value. For example, this trade would have been initiated by selling the February 37 calls at a value of around 57¢. When these calls reach minimal value, let us say 10¢ for discussion, they could be bought back, and the March calls sold to capture substantial additional premium. This process can continue for April, May, June, and July. These additional sales give the opportunity to reap additional profit for the trade.
The risks in the trade are:
1.USO breaks support and continues to sell off
2. Volatility collapses on the long leg of the trade
I have discussed both of these factors in the price chart and volatility chart above when I was developing the logic of the trade. While no guarantees exist for the behavior of either price or volatility, the current trade represents a reasonable balance between risk and probability in my opinion.
As with all our discussions, these considerations are presented for educational purposes and do not represent a recommendation. This is not a solicitation nor should it be considered financial advice. I am simply trying to demonstrate how to use the knowledge of option behavior to construct trades that benefit from high probability events. Bombs away!
Get More Trading Ideas From J.W. Jones at Options Trading Signals.com
Share
At the risk of stating the obvious, the recent market action in the commodities has been manic with wild gyrations of price in a wide variety of basic materials, metals, and energy. Given these wild fluctuations in price, I thought we could look at an options trade in USO that gives a high probability of success.
In order to give a bit of a conceptual framework for this sort of trade, let me share the way I look at these. Development of precision high altitude bombing during World War II resulted in a dramatic reduction in casualties while inflicting devastating consequences to enemy forces. I view the sort of option strategy described below as the equivalent of high altitude precision bombing. We will extract substantial profit without putting ourselves at high risk of damaging anti-aircraft fire.
As is shown on the daily price chart below, there is substantial support in the region of 35.60-36 provided by a recent swing low and the 200 period moving average.
In selecting the structure of option trades, I usually like to consider the volatility environment in which we currently operate. This is important because a very strong tendency of implied volatility is reversion to its mean. The knowledgeable trader factors this into his trades in order to put the wind at his back as much as possible. Trades can be selected and constructed to benefit (positive vega trades) or suffer (negative vega trades) from increases in implied volatility. As you can see in the chart below, implied volatility is currently in the lower quartile of its historic value for this specific underlying:
Given the current low volatility, let us look at a strategy that gives us substantial profit from an altitude of 50,000 feet and the ability to roll the trade forward for additional substantial profit. This trade is structured as a “ratio calendar spread”. Now don’t go getting hung up on the name, it is simply a two legged trade in which we buy a longer dated in-the-money call and sell a smaller number of out-of-the-money calls. The trade is diagrammed below:
For those getting used to these sorts of trades and trying to form an organizational framework, the trade can be thought of as a basic calendar spread where an additional contract of the long options is purchased. The addition of this extra contract removes the upside limit on our profitability which would exist in an ordinary calendar spread. As is often the case in option trading, this trade can also be thought of as a “first cousin” to a covered call structure where the long in-the-money contracts serve as a surrogate for long stock. I find it helpful to think of the various option constructions as individual members of several different families. Each family has a number of “family traits” that help make sense of the large number of potential constructions available to the options trader.
One of the characteristics of this family under discussion is the “Sham Wow” factor- “but wait-there’s more”. The “more” in this trade is the ability to “roll” the short calls forward as they expire or, more prudently, as they reach inconsequential value. For example, this trade would have been initiated by selling the February 37 calls at a value of around 57¢. When these calls reach minimal value, let us say 10¢ for discussion, they could be bought back, and the March calls sold to capture substantial additional premium. This process can continue for April, May, June, and July. These additional sales give the opportunity to reap additional profit for the trade.
The risks in the trade are:
1.USO breaks support and continues to sell off
2. Volatility collapses on the long leg of the trade
I have discussed both of these factors in the price chart and volatility chart above when I was developing the logic of the trade. While no guarantees exist for the behavior of either price or volatility, the current trade represents a reasonable balance between risk and probability in my opinion.
As with all our discussions, these considerations are presented for educational purposes and do not represent a recommendation. This is not a solicitation nor should it be considered financial advice. I am simply trying to demonstrate how to use the knowledge of option behavior to construct trades that benefit from high probability events. Bombs away!
Get More Trading Ideas From J.W. Jones at Options Trading Signals.com
Share
New Video: Let's Rate The Precious Metals Market
Before you look at the video, you may want to consider doing this as an exercise: Write down which market has the strongest trend, up or down. Then rate the markets. Number 1....Number 2....Number 3.... Once you see the video it will become clear to you how we rate these markets. It might surprise you.
If you're using MarketClub's "Trade Triangle" technology the answer is simple and you'll discover it in a matter of seconds. If you haven't used our "Trade Triangle" technology, this will be a good exercise for you to look and see just how powerful this technology is and how it can help your trading.
We all know that gold has had a big move, but so have silver and rare earth stocks. So what's next? We hope this video helps outline some ideas that you can put to good use in the future.
As always our videos are free to watch and there are no registration requirements. All we ask in return is that you Tweet about us and share this video with your friends. Also, please feel free to leave a comment and let us know what you are thinking. Enjoy the video and every success in trading,
Watch "Let's Rate The Precious Metals Market"
Share
Could One Fed President Spoil The Crude Oil Bull Run
He said the "distinct improvement in the economic outlook since the program was initiated suggests taking revaluation quite seriously". But Lacker tried to make it clear he is still not ready to stop the program entirely right now since "strong readings on jobs and sustained consumer spending would warrant a rethink on growth".
World oil and commodity traders did consolidate oil prices overnight as most expect to see the same upward revisions in OPEC's and IEA's reports on Thursday as they saw in the US Energy Departments monthly report published yesterday which predicted increases in oil price and global demand.
Retail gas customers may get some relief this week as gasoline supplies gained 3.2 million barrels to 239.7 million barrels, the API said. The higher inventory numbers would put stockpiles at the highest level since February 26th 1993. Motor fuel inventories also increased 2.6 million barrels from 236.2 million a week earlier.
Here's your pivot, resistance and support numbers for Wednesdays trading.....
Crude oil was higher due to short covering overnight as it consolidates some of the decline off last week's high. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term. If March extends the decline off last week's high, January's low crossing at 85.11 is the next downside target. Closes above the 20 day moving average crossing at 89.60 would signal that a short term low has been posted. First resistance is the 10 day moving average crossing at 89.00. Second resistance is the 20 day moving average crossing at 89.60. First support is Tuesday's low crossing at 85.88. Second support is January's low crossing at 85.11. Crude oil pivot point for Wednesday morning is 86.98.
Natural gas was lower overnight as it extends the decline off January's high. Stochastics and the RSI are oversold but remain bearish signaling that additional weakness is possible near term. If March renews the decline off January's high, the 87% retracement level of the October-January rally crossing at 3.975 is the next downside target. Closes above the 20 day moving average crossing at 4.405 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 4.262. Second resistance is the 20 day moving average crossing at 4.405. First support is the overnight low crossing at 3.996. Second support is the 87% retracement level of the October-January rally crossing at 3.975. Natural gas pivot point for Wednesday morning is 4.065.
Gold was slightly lower due to light profit taking overnight as it consolidates some of Tuesday's rally but remains above the 20 day moving average crossing at 1351.50. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If February extends the rebound off January's low, the reaction high crossing at 1394.70 is the next upside target. Closes below the 20 day moving average crossing at 1344.60 would temper the near term bullish outlook. First resistance is Tuesday's high crossing at 1368.70. Second resistance is the reaction high crossing at 1394.70. First support is the 10 day moving average crossing at 1344.50. Second support is January's low crossing at 1309.10. Gold pivot point for Wednesday morning is 1360.60.
Make Sure to Take Advantage of our Free Weekly Low Risk Stock Picks
Share
Tuesday, February 8, 2011
Peoples Bank of China "Resets" Crude Oil and Commodity Prices
This is shaping up to be a trade war and currency battle like has never been seen before as the U.S. Federal Reserve policy of QE2 keeps driving commodity inflation and demand while emerging markets around the world and especially the Chinese are looking to reel in their inflation woes and drive down those same commodity prices. So who is really in the drivers seat, who has the upper hand? We say the bank is the one that calls the shots and we all know who that is, this is what we get for depending on China to buy our debt while maintaining such a trade imbalance.
Crude oil was lower overnight as it extends the decline off last week's high. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term. If March extends the decline off last week's high, January's low crossing at 85.11 is the next downside target. Closes above the 20 day moving average crossing at 89.82 would signal that a short term low has been posted. First resistance is the 10 day moving average crossing at 88.95. Second resistance is the 20 day moving average crossing at 89.82. First support is the overnight low crossing at 85.88. Second support is January's low crossing at 85.11. Crude oil pivot point for Tuesday morning is 88.07.
Natural gas was lower overnight as it extends the decline off January's high. Stochastics and the RSI are oversold but remain bearish signaling that additional weakness is possible near term. If March renews the decline off January's high, the 87% retracement level of the October-January rally crossing at 3.975 is the next downside target. Closes above the 20 day moving average crossing at 4.430 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 4.316. Second resistance is the 20 day moving average crossing at 4.430. First support is the overnight low crossing at 4.069. Second support is the 87% retracement level of the October-January rally crossing at 3.975. Natural gas pivot point for Tuesday morning is 4.160.
Gold was higher overnight and trading above resistance marked by the 20 day moving average crossing at 1350.90. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 1350.90 are needed to confirm that a short term low has been posted. If February renews the decline off January's high, the 25% retracement level of the 2009-2010 rally crossing at 1296.40 is the next downside target. First resistance is last Friday's high crossing at 1360.00. Second resistance is the reaction high crossing at 1394.70. First support is January's low crossing at 1309.10. Second support is the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Gold pivot point for Tuesday morning is 1348.90.
Make Sure to Check Out Our Free Weekly Low Risk Stock Picks
Share
Subscribe to:
Posts (Atom)
