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| Written March 2004 |
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| I would like to start off by saying
Option trading on Futures could have limited or unlimited
risk. I am going to go through a few strategies that will give
you unlimited potential with limited risk. I am going to focus
on the best market in the last 20 years, Soybeans! I am
going to go over 2 different strategies and both are Free.
The 1st strategy is going to take a Bullish view on Soybeans
and the 2nd is going to take a Bearish view in Soybeans. |
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We all know the Soybeans are in a tremendously Bull market. We are seeing prices we haven't seen in 20 years. Are Soybeans going to 15.00 or are they going back where they came from last year, 5.00? There is very good reason why Soybeans prices are this high. There has been a major increase in demand due to China and some of the lowest supplies in over 20 years. What is going to happen if this strong demand continues and we have a drought this Summer.
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| FREE Trade # 1 |
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| The current price of July Soybeans is 10.40. Let's say we think the bull trend will remain in tact. Let's also say China continues to buy more Soybeans and we have a drought this Summer.
This trade has unlimited potential with unlimited risk. This trade is more on the aggressive side. *Sell the July Soybean 10.20/put and buy the July Soybean 10.80/call the totat cost is FREE. The July Soybean 10.20/put
is going for 60 cents, which we would be getting a credit. The July Soybean 10.80/call is going for 60 cents, which we would be getting a debit. In essence no cost to the customer. Sound pretty good doesn't it! It's not that simple. |
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| Bad News: |
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| Keep in mind we have unlimited risk on the July Soybean 10.20/put. I never like being exposed to unlimited risk, so I recommend placing a double out stop on your 10.20/put. We would be placing a stop
loss at $1.20 on the july Soybean 10.20/put. There is some news that comes out that the United States is going to plant 3x the acerage from last year. In turn increasing our supply by a great deal and alleviating the shortage we had. The prices of
Soybeans plung and grad our double out stop. We lose the 60 cents on the stop loss and the 60 cents on the 10.80/call = $1.20 or $6,000! (Every cent in the Soybeans is $50) |
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| Good
News: |
| Let's say we are right and Soybeans go to 15.00 almost immediatly, because of a drought. The July Soybean 10.80/call will go into to money by $4.20 + we get to keep the 60 cent credit on the
10.20/put = $4.80 or $23, 750 profit!! |
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| Free trade #2 |
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| The current price of July Soybeans is 10.40. Let' say we thind the bull trend is coming to an end and we are going to see lower prices. We are planting 3x the amount of Soybeans from last year in turn increasing the
amount of supply we have and prices come down due to the fact of more supply. This trade has unlimited potential with limited risk. This trade is relativly conservative. *Sell the July Soybean 10.60/11.00 call spread for a 26 cent credit.
Use that 26 cent credit and buy the July Soybean 940/put. In essence no cost to the customer. Sound pretty good. Let me explain. |
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| Good News: |
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| We are right and the acerage planted far exceeds the increased demand from China. The Soybean prices plummet to 5.00. The July Soybean 940/put will go into the money by $4.40 + the 26 cent credit from the call spread we sold =
$4.66 or $23,300 profit!! |
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| Bad News: |
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The good news about the bad news on this trade is that our risk is limited. Our risk is limited to to 40 cents, the diffence in the call spread we sold + the cost of the put, which is 26 cents = 66 cent or $3,300.
We have increased the amount of acreage we are going to plant by 3x of last years crop. We have a drought and we grow less than we had last year. Soybean prices go to 20.00 and we lose the $3,300.
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There are alot of numbers of these 2 FREE trades. I could help simplify these trades by spending 10-15 minutes with you and breaking them down in
black and white. If you would like me to spend some time with you I would be more than happy to. Email me at
jg@manducatrading.com and leave me a phone # you could be reached at
and I will call you within a day or two. |
John Garrity |
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