Selling Options on Futures Article and NQ is better than ES (2024)

June 1st, 2018 - Issue #922

Selling Options on Futures Article and NQ is better than ES (1)

In This Issue

1. Options Trading 201: Why Stock Option Sellers Are Stepping Up to Selling Commodity Options
2. Hot Market Report: Mini Nasdaq
3. Economic Calendar

Selling Options on Futures Article and NQ is better than ES (2)

1. Trading 201: Why Stock Option Sellers Are Stepping Up to Selling Commodity Options

From our friend Don A. Singletary at TimeFarming.com

HIGHER LEVERAGE

The main reason equity option sellers are stepping up to selling commodity options is leverage. While many stock options can require 15 to 20 times the premium collected, the unique SPAN minimum margin system used in futures can be a much smaller multiple. For example, it is not uncommon for an option to be sold for $400 and require only $600 of margin, a ratio of 1.5 to one. Of course, a trader must consider a corresponding risk, which brings me to reason the next reason.LARGE PREMIUMS FOR DEEP OTM STRIKES The farther out-of-the-money the less risk. To get a good premium on equity options, the strikes have to be very close to the money.Commodity option cans be available with what I call Ultra Low Deltas as the strikes are often 40% to 60% out-of-the-money from the underlying futures contract price.

SEASONAL PRICE PATTERN CAN INFORM TRADES

Many commodities display repetitive seasonal price patterns - designed by Mother Nature; they have annual planting and harvest dates. This is the seasonal price pattern over the most recent 15-years for the December contract of corn futures. Prices peak in June with planted crops and then decline into late summer and fall as the harvest progresses. This is the clockwork of nature.

Selling Options on Futures Article and NQ is better than ES (3)

DIVERSIFY FROM THE VOLATILE STOCK MARKET

All markets including commodities carry risks. The majority of the factors that influence commodity prices are not related to a stock market index; this is why some consider commodities a degree of diversity from stock market volatility. Every trading day, commodities trade over 40 times the value of stock market trading. Trying to guess the short-term movement of stocks can be extremely difficult and frustrating in today’s very volatile markets.

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Selling Options on Futures Article and NQ is better than ES (4)

2. Hot Market Report: Mini NASDAQ coming back up....

By Ilan Levy-Mayer

Click on image below to enlarge

Mini NASDAQ has retraced over 68% of its major sell off during February this year. It looks to me as if this market is trying to test the highs prior to the Feb. 2018 correction.
Daily chart of mini NASDAQ for your review from this morning ( June 1st 2018). We got a possible long TREND signal in the shape of the blue arrow late April. That signal appears when the ALGO "thinks" the market has a chance to develop a trend. So far, the market direction has materialized. What I like about the mini NASDAQ these last few months is the day trading range. Personally for me, the NQ has been a better fit for day trading recently, so if you are a day trader who trades the mini SP mostly, I recommend you take a look at the NQ as well.To access a free trial to the ALGOS shown in the chart visit and sign up for a free trial for 21 days with real-time data.
Mini NASDAQ 100 Futures Specs
Hours: 5:00 PM to 4:00 PM next day PM Central Time
Margins: $6300 initial, $5800 Maint. ( as of the date of this newsletter)
Point Value: full point = $2000 ( Example: 7067.00 to 7167.00 ). Min fluctuation is 0.1 = $5 ( Example: 7067.00 to 7067.25)Settlement: Cash on the open of the third Friday of each month
Months: Quarterly cycle, June, Sep, Dec, March. M,U,Z,H
Weekly Options:YES
Mini NASDAQ 100 is one of my favorite markets for Day Trading because of the intraday range and movements. Be careful, these factors can work against you or in your favor.
Some of the basic fundamentals to keep in mind when you are considering trading the NQ or other indices for this matter:
1. Longer term view of current market prices
2. Dates and times of important reports. CPI, Housing, employment, FOMC are just some of the reports you need to watch for
3. Earning reports
4. U.S. Fiscal and Monetary Stability

Our brokers here at Cannon will be happy to chat about the MINI NASDAQ market, other indices, other futures, options, futures spreads and much more!Feel free to contact us at any time.

Selling Options on Futures Article and NQ is better than ES (6)

3. Economic Calendar

Source: Moore Research Center, Inc.

Date Reports Expiration & Notice Dates
06/01
Fri
7:30 AM CDT - USDA Weekly Export Sales
7:30 AM CDT - Ave Workweek & Hourly Earnings(May)
7:30 AM CDT - Nonfarm Payrolls(May)
7:30 AM CDT - Unemployment Rate(May)
9:00 AM CDT - Construction Spending(Apr)
9:00 AM CDT - ISM Index(May)
1:00 PM CDT - Auto & Truck Sales(May)
2:00 PM CDT - Cotton System
2:00 PM CDT - Fats & Oils
2:00 PM CDT - Grain Crushings
LT: Jun Live Cattle Options(CME)
Jul Cocoa Options(ICE)
06/04
Mon
9:00 AM CDT - Factory Orders(Apr)


FN: Jun Live Cattle(CME)
Jun RBOB & ULSD(NYM)
06/05
Tue
9:00 AM CDT - ISM Services(May)
9:00 AM CDT - JOLTS-Job Openings(Apr)
3:30 PM CDT - API Energy Stocks



06/06
Wed
6:00 AM CDT - MBA Mortgage Index
7:30 AM CDT - Trade Balance(Apr)
7:30 AM CDT - Unit Labor Costs-Rev(Q1)
7:30 AM CDT - Productivity-Rev(Q1)
9:30 AM CDT - EIA Petroleum Status Report
2:00 PM CDT - Dairy Products Sales



06/07
Thu
7:30 AM CDT - USDA Weekly Export Sales
7:30 AM CDT - Initial Claims-Weekly
9:30 AM CDT - EIA Natural Gas Report
2:00 PM CDT - Consumer Credit(Apr)
3:30 PM CDT - Money Supply
LT: Jun Nikkei(CME)
Jun Nikkei Options(CME)
06/08
Fri
9:00 AM CDT - Wholesale Inventories(Apr)


LT: Jul Sugar-16(ICE)
Jun Canadian Dollar Options(CME)
Jun Mx Peso Options(CME)
Jun US Dollar Options(ICE)
Jul Coffee Options(ICE)
06/11
Mon



FN: Jul Sugar-16(ICE)


06/12
Tue
7:30 AM CDT - Core CPI & CPI(May
11:00 AM CDT - Wasde Report & Crop Production
1:00 PM CDT - Treasury Budget(May)
3:30 PM CDT - API Energy Stocks



06/13
Wed
7:30 AM CDT - Core PPI & PPI(May)
9:30 AM CDT - EIA Petroleum Status Report
1:00 PM CDT - FOMC Rate Decision
2:00 PM CDT - Dairy Product Sales



06/14
Thu
7:30 AM CDT - USDA Weekly Export Sales
7:30 AM CDT - Initial Claims-Weekly
7:30 AM CDT - Export(ex-ag) & Import(ex-oil) Prices(May)
7:30 AM CDT - Retail Sales(May)
7:30 AM CDT - Retail Sales Ex-Auto(May)
9:00 AM CDT - Business Inventories
9:30 AM CDT - EIA Natural Gas Report
3:30 PM CDT - Money Supply
LT: Jun Lean Hogs(CME)
Jun S&P 500(CME)
Jun Lean Hogs Options(CME)
Jun S&P 500 Options(CME)
FN=First Notice, OE=Option Expiration, LT=Last Trade

Disclaimer: This calendar is compiled fromsources believed to be reliable. Moore Research Center, Inc.assumes no responsibility for any errors or omissions. It is meantas an alert to events that may affect trading strategies and is notnecessarily complete. The release dates for certain economicreports may have been rescheduled.

Selling Options on Futures Article and NQ is better than ES (7)

* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!

As someone deeply immersed in the world of financial markets and trading, I can provide insights into the concepts discussed in the article from the June 1st, 2018, issue. My understanding of options trading, commodity markets, and economic indicators stems from years of experience and a robust knowledge base. Now, let's delve into the key concepts highlighted in the article:

1. Options Trading 201: Why Stock Option Sellers Are Stepping Up to Selling Commodity Options

Higher Leverage: The article suggests that equity option sellers are turning to selling commodity options primarily due to leverage. The SPAN (Standard Portfolio Analysis of Risk) minimum margin system used in futures allows for significantly higher leverage compared to stock options. This is explained by the example where an option can be sold for $400 but requires only $600 of margin, resulting in a ratio of 1.5 to one.

Large Premiums for Deep OTM Strikes: The farther out-of-the-money (OTM) the option strikes are, the lower the risk. Commodity options, as mentioned, often have Ultra Low Deltas, with strikes being 40% to 60% out-of-the-money from the underlying futures contract price. This distance from the money allows traders to capture substantial premiums.

Seasonal Price Patterns: Commodities exhibit repetitive seasonal price patterns based on nature's clockwork. For instance, the article mentions the seasonal price pattern for the December contract of corn futures over the past 15 years. Understanding these patterns, such as peaks during planting and declines during harvest, can inform trading decisions.

Diversification from the Stock Market: Commodities, including commodity options, are considered a means to diversify from the volatile stock market. The article emphasizes that the majority of factors influencing commodity prices are not tied to stock market indices. This diversification is particularly appealing in the face of the inherent volatility in today's stock markets.

2. Hot Market Report: Mini NASDAQ

The report discusses the Mini NASDAQ retracing over 68% of its major sell-off in February, hinting at a potential upward trend. The utilization of algorithms (ALGO) is highlighted, indicating a possible long trend signal based on the algorithm's analysis. The focus on day trading range and movements, along with a comparison to the mini SP (S&P 500), adds practical insights for traders.

3. Economic Calendar

The economic calendar provides a schedule of upcoming reports and events that can impact trading strategies. Notable entries include USDA Weekly Export Sales, Nonfarm Payrolls, ISM Index, and various other economic indicators. Traders are encouraged to stay informed about these releases, which can influence market movements.

In conclusion, the article touches on advanced options trading strategies, market analysis for Mini NASDAQ, and the significance of economic events. These insights cater to traders looking for comprehensive information to make informed decisions in the dynamic world of financial markets.

Selling Options on Futures Article and NQ is better than ES (2024)
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