Articles

Futures and options are both derivative instruments, which means they derive their value from an underlying asset or instrument. Both futures and options have their own advantages and disadvantages. One of the advantages of options is obvious. An option contract provides the contract buyer the right, but not the obligation, to buy or sell an asset or financial instrument at a fixed price on or before a predetermined future month. That means the maximum risk to the buyer of an option is limited to the premium paid. But futures have some significant advantages over options. A futures contract is a binding agreement between a buyer and seller to buy or sell an asset or financial instrument at a fixed price at a predetermined future month...

Key Points Trading always involves some level of risk, but “risk” can be defined in many different ways. Is it the probability of profit compared to the probability of loss? Or is it the amount you could earn compared to the amount you could lose? Plus, how do you quantify risk? Is it the number of shares or the dollar amount? Is options trading risky? This is a harder question to answer than you might think, because it depends upon how you define “risk.” Most traders define risk in one of two ways. The first method is the probability of earning a profit versus the probability of incurring a loss. The second way is the amount of money you could lose compared to the amount of money you could earn. Let’s look at both...

In this article we will examine a specific case of a debit and a credit spread in order to point out that there is virtually very little difference between the two. Instead of attempting to explain the concept by using a fictitious example, the stock XYZ with the one strike price being at this level and the other one at that level, etc, we shall utilize a couple of my recent trades for the same purpose. Again, this scrutiny is for education purposes only and it is not intended to be a recommendation of any kind. My normal criteria for trading optionable stocks is the liquidity which is evident in the volume of the underlying as well as the high open interest and volume on individual strike prices. The Chevron Corporation has passed...

Producing a high probability trade forecast is not easy. Just as difficult is determining the best trading strategy and vehicles to capitalize on the forecast. Read on to learn some of my favorites trading strategies. Let's say you've done your homework. You've identified a pivot point, a futures market direction and have projected a time frame for the move. The only thing missing is the price amplitude. In other words, how big or small will the price move be? Generally, the magnitude of the move will always be the unknown. With TimeLine forecasts we will always have an idea of the direction and time frame, but it is up to real world commodity market forces to decide how far the move will carry. The way to handle price uncertainty is...

Ever wondered about Futures Spread Trading? In this article the author looks at the basics and the best way to trade them. How professional traders optimize profits Futures spread trading is probably the most profitable, yet safest way to trade futures. Almost every professional trader uses spreads to optimize his profits. Trading spreads offers many advantages which make it the perfect trading instrument, especially for beginners and traders with small accounts (less than $10,000). The following example of a Soybean-Spread shows the advantages of futures spread trading: Example: Long May Soybeans (SK3) and Short November Soybeans (SX3) Four Advantages of Futures Spread Trading Advantage 1: Easy to trade Do you see how nicely this...

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...