Track 'n Trade Futures End of Day Options
In this Track 'n Trade Pro Option Trading Training video, I want to teach you how to protect your trade with free insurance.
The way we do this is we buy out of the money Put Options to protect our positions against a market crash. In addition, we sell out of the money Calls to pay for the Puts.
Let's suppose that you own one O.J. Contract, that's trading at 107.00. You like this market because you feel like it has a lot of good upside potential. However, you're nervous about the possibility that the market might undergo a large correction. You would feel much more relaxed and confident if you could protect your holdings against this type of a risk.
Okay, here's how you get free insurance: Look for under-priced, out of the money O.J. Put Options. The Options premium will be less than the fair value. Again, look at your Indicator in Track 'n Trade, or ask your broker. If you can't find any under-priced Options, don't worry! Just pick an Option, that's one or two strikes out of the money.
Next, look for under-priced out of the money O.J. Call Options, the Options premium will be more than the fair value. Again, look at your Indicator or ask your broker. If you can't find any that are over-priced, again, don't worry! Just pick a Call Option that is one or two strikes out of the money.
Now, let's say you own one O.J. Futures Contract that's currently trading around 107.00. Here's what you do: Buy one 100.00 Put Option, and sell one or two 115.00 Call Options. Basically, you're buying an insurance Put and writing a covered Call, to pay for it.
This gives you free insurance. You'll protect your position, in the event of another large market correction, against your standing Futures position. If the price of your Futures moves up above 115.00, and the Call Option you sold is exercised, then you have to be willing to sell your O.J. at that price. But if that happens, it means you have a small, tiny little profit. In addition, you can always buy the Futures market back again, on a pull back.
The main benefit of this strategy, is if the market crashes, you don't get burned.