Track 'n Trade Futures End of Day Options
Fishing with Options
In this Track 'n Trade Pro Options Trading Training video, I want to talk to you about fishing with Options. To fish with Options, what we do is we purchase inexpensive Options in the opposite of the trend of the underlying Futures market, when you're expecting a market reversal.
Follow annual lows down with Trailing Call Options or follow annual highs up with inexpensive Put Options. This is a very simple and easy strategy to follow, if you're attempted to try and predict market direction. Try to purchase options, with at least 30-90 days before expiration. When markets start to reach way up high, or way down low into uncharted territory, buying cheap out of the money, but not too far out of the money Options in the opposite direction, is a good strategy to catch the market when it falls. If you wait until a trigger, then Options are very, very expensive. But if you purchase them, as the market goes away from your strike price, they're very cheap and affordable. Also, a good hedge against a crashing or a quickly rising market.
Waiting for a Trigger Signal is a great strategy for outright Futures contract purchasing. But you would never want to use this strategy with an outright contract. But when you're gut tells you that this market has got to be making a correction soon, but there are no triggers or signals, then that's a good time to consider an Option as a hedge.
Let's suppose you're following Coffee, and you notice it forming a nice little 123 bottom formation, on a new annual low. You like this market, because you feel it has a good upside potential. However, you're nervous about the possibility that it might continue in the long term down trend. you would feel much more relaxed and confident if you were not required to jump in with a Futures contract. But only risk a premium of an inexpensive Trailing Call Option.
Okay, here's how it works: Look for under-priced, out of the money Coffee Call Options. The Options premium will be less than the fair value. Again, ask your broker, or look at your indicator at the bottom of Track 'n Trade. If you can't find any under-priced Options, don't worry! Just pick a Call Option, that's 1 or 2 strikes out of the money, or just behind resistance. If the market continues in a long term trend, in this case down, and breaks the 123 formation, wait for the next one. Then, do it again.
Don't liquidate your previous Option. Hang on to it, in case a nice market retraces and makes a big correction. Then, both or all of our Options will become valuable, again. The main benefit of this strategy, is if the market crashes, you won't get burned. If it retraces, as expected, you end up being in the market as you wanted to be in the first place. If the market does retrace, and your Option ends up in the money, consider selling several further out of the money Options, to pay for the Options you purchased. Giving you a nice free trade.