Alternative Strategies For Stock Index Futures


15 ratings



Paul Brittain

02 Jun, 2006

in Indices and 2 more

Stock indices futures are known for their volatility, however trading index options may be a more manageable alternative for the average trader.

Highly leveraged futures contracts are available in all of the major indices. Perhaps the most popular being the Dow, Nasdaq and S&P 500. Similar to mutual funds, trading indices offer stock traders instant diversity.  Traders can profit from an increase or decrease in the overall equity market as opposed to trying to pick individual stocks.

However, the volatility and leverage involved with stock index futures prove to be unmanageable for many traders. For this reason, traders may find that options are the ideal instrument for index trading.

Range Trading

Because the stock market can be unpredictable at times, it is often appropriate to use range trade strategies such as the option butterfly in order to increase the odds of success.
It is not uncommon for stock indices to trade in a defined range.  This can be true in bull, bear or stagnant market conditions making butterfly strategies ideal.

Option Butterfly trades are affordable and conservative. However, for those that are willing to accept additional risk in hopes of higher yields may find that futures, as opposed to options, better meets their goals.

A butterfly consists is a limited risk trade that provides a large “profit playground” with little out of pocket expense.  The option spread can be constructed using either calls or puts.  A Butterfly consists of two long options and two short options with three equidistant strike prices.

Swing Trading

Because the stock market often experiences short-lived trends, perhaps the most efficient way to trade them is through swing trading.

Swing traders don’t attempt to predict the duration of a trend, or to hold a bullish or bearish bias.  The premise of this trading style is that one can capitalize on both trending and retracement phases of a market.

The vital assumption is that all upward price action must eventually result in a period of correction.

To successfully swing trade stock market indices, it is necessary to have a relatively quick trigger for entry and exit.

Moving average crossovers are often the optimal method of timing entry and exit.  This is because; a crossover is capable of marking the end of one trend and the beginning of another.

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Today I had placed a volatility bet, real-live example:

Currently GBP/USD is trading 1.9660. In my opinion GBP/USD is the wildest currency among the major pairs. I'm betting that GBP/USD will move out of the range 1.9653 - 1.9683 by 5am China time.

Odds of 1.855 is quite expensive. Meaning if I lose this trade, I'll lose US$300; and if I win, I'll gain only US$90. Since I think the chance of GBP/USD to move out of the range is high, I decide to take the bet.

Image of binary platform: Binary Trading: Bet on volatility for GBP/USD

May 21, 2008

Banned (31 posts)

I think that is because understanding of binary trading is not sufficient to the general trading / investment community. I'm certainly not posting nonsense.

I have been trading for years, and now I'm a hedge fund trader in my profession. I understand that if you view is correct, say you are bearish on copper (which I am now), you can either buy a put option, sell copper futures, or short copper ETF, or place an UNDER bet for binary, you still make money in all the methods.

But the risk element in different methods differs. Futures trading expose you to unlimited risk. Binary trading allows you to control your risk.

I was a futures broker in my previous job, I had seen so many of my customers losing huge amount of money through futures trading. When their view is wrong, they refuse to cut loss, then loss becomes bigger.

If you are trading binary, you will not have this problem. The platform will "cut loss" for you when you are wrong, and your loss will not become bigger.

I think binary is new to a lot of people, and people usually associate binary trading to gambling; think with an open mind. Its just alternative way of trading.

May 21, 2008

Banned (31 posts)


Futures trading is too risky as it is highly leveraged. Binary trading is safer, I know the total amount of money I'll be risky before I place my bets. It is more favourable in risk management point of view.

Really ? Then why aren't the futures exchanges around the world closing their doors, as traders desert them to flock to you. Why don;t you stop posting unsubstantiated nonsense.

May 21, 2008

Member (1604 posts)