Iron Condor

Your stocks are crashing and your real estate value is eroding all at the same time. Even commodities are tanking. These are some of the greatest ways Americans have accumulated wealth up until now. So what’s a trader or investor to do?

Learn to trade the “recession proof” market – the Currency (Forex) Market!

For instance, it’s been no secret that the number of unemployed in the U.S. is growing rapidly.

650,000 Job Losses Expected to be Reported on Friday! 

This is also causing an enormous spike in the unemployment rate. See its chart below. Previously the unemployment rate had jumped up to a whopping 7.6%. However, on Friday this is expected to come in at 7.9%.

The Unemployment Rate goes Parabolic!

Learn how to Make Money from Fundamental Trends!

It’s extremely unfortunate what is happening in America. I bleed “red, white and blue”. However, I can’t change this fundamental trend in place. This will be up to forces that are much bigger than me: the government, the Fed, the Treasury, etc.

However, until they can get this turned around (and that will take some time), we can profit from the fundamental trend that has unfolded.

As economies have gotten hit hard in the U.S. and around the world, money has run to what it feels are “safe havens”. Since the dollar is the world’s reserve currency AND it had been beaten down for years, back to back…money ran there for shelter from this “economic storm” and that trend continues to this day.

For the last year, the rise of the dollar has been one of the few “upward trending” games in town, even when you look to just about every market out there: stocks, real estate, commodities, etc. In fact, it’s breaking out to new highs even now! How many financial instruments anywhere can boast that right now? Very few!

Two Steps to Making Gains in the Forex Market!

So while your stocks and real estate are perishing for now, you need something to buffer these blows with. That’s where the forex market comes in. It’s one more way you can diversify your portfolio and also get into trades that are heading higher NOW and not months or years from now.

How do you delve into this market? I’d say there are two steps to take before you “go live” in this market.

1. Get Educated about this market. I’m always amazed at the people that delve into any trading market with NO education. Would you try this at plumbing, brick laying, being a doctor or a lawyer? Of course not! Yet, people delve into this arena with “experienced traders” and expect to profit just as they do. They are simply dreaming. What they need is an education to “learn the ropes”. Anyone can afford to get an education in currencies these days. Why? Because we’ve made it “online” so that you can take it in your spare time AND made it to where it only costs $25 so that everyone can afford it.

2.Get a “real time”, free demo account. When I first learning how to trade stocks, I never had this awesome option. However, in currencies you do. It comes with FREE real time quotes and charts that you can trade off of. Your trades go onto demo servers, so you literally don’t risk 1 cent but yet you get to learn the ropes by gaining experience in trading this market. 

Once you’ve gotten your low cost education and you are implementing what you’ve learned by using the demo account, after about 30 days you will be ready for the final step – “Going Live”.

You should start with a micro or mini forex account. Deposit at least $300 to $3,000 to get started and you’re “up and running”…trading this “recession proof market” and helping your future by making gains NOW rather than just sitting idly by while your stocks, commodities and real estate continue to dwindle before your eyes.

Take these steps and it will help you to stop the downward spiral of your net worth and to do something proactively about it today.

Sean Hyman

Head Course Instructor

My Wealth

The issue of direct access is an important one and it becomes more important the more short term your trading is. The market can change from a state of seeming paralysis to one of shocking volatility and activity in a flash. The length of time it takes between you deciding to enter an order and the order actually being in the market is obviously important.
When I first started trading I used a phone broker and was dismayed that my fills would often be so far from the price the market was trading when I first entered the order.
The first time I visited the trading floor, I discovered why. When I called in an order, first my discount broker would check my account equity, then he would call a phone booth on the floor, the phone broker on the floor would then write the order down and pass it on to a booth next to the appropriate pit, at that booth my order would be written down again and then signaled to a broker in the pit to be executed.
As you can imagine this would take quite a long time, even longer of course if the market was very active, as this would mean that the broker in the pit would be too occupied to take new orders. Compare this to my experience of trading as a pit trader. In the pit I was in the heart of the market and could observe every single order as it was executed (there was no delay in my price feed!).
To initiate a trade, whether it was to buy or sell at the market, or join the bid or the offer, all I had to do was open my mouth. You can start to see the huge advantage that trading on the floor gave me over off floor traders; and that doesn’t take into consideration the fact that my round trip costs fell by 96%.
Now the floor no longer exists, not in Europe at least, so why talk about the advantages of pit trading? Well the level playing field is now open to all, but very few take advantage of it. Trading with an electronic trading platform is exactly the same as trading in the pit, except I can sit down, it is much quieter and there are no crude jokes flying around.
I can trade with the click of a mouse; my order shoots to the exchange, enters in the market and appears back on my screen before I have time to blink. I think the advantages of direct access trading are clear and any futures trader still using a phone broker should move to direct access, they will also find their commissions are less (around $8 for private client traders).
The next question that arises is why trade futures? That is an important consideration given that there are a variety of alternatives vying for your trading capital (spread betting, CFDs and options), but in my opinion, futures are the only option (no pun intended) for successful short term trading.
A lot of traders are trading the stock indexes like the FTSE, the DAX, the S&Ps, NASDAQ and the DOW, but rather than use futures they are using spread betting firms. The reasons for using these firms is that they require very small amounts of capital to get started, a trader can trade very small amounts (like $1 a point on FTSE as opposed to $10 for FTSE futures) and these firms make opening an account so easy.
I understand the lure of being able to open an account with very little money and trading small amounts, but I have some serious considerations about using spread betting as a realistic vehicle for professional trading.
The two biggest selling points are no commissions and no capital gains tax. There are many different costs to trading, commissions are one and the spread is another (especially when you have to trade at the market as you do with spread betting, with futures you have the choice of joining the bid or the offer).
Commissions are important for an active trader and as an active trader you can get them very low, but lets assume they are $8 per round turn for futures and lets assume that the spread in FTSE futures is an average of 2 points. If the spread with a spread betting firm for FTSE is 6 points and assume that we are trading $10 a point we can compare the two trading vehicles.
Last week I made an average of 2.42 points per contract traded and I traded 48 times. That is, for each contract I bought and sold I made $24.20 before commissions, assuming my commission rate is $8, I made a profit of $16.20 per contract traded, which is $777.60 net profit if my average size per trade is one contract.
Had I had the same success trading with a spread-betting firm, with a 6-point spread, I would have lost $1718.40! Now I would rather pay tax on a profit that no tax on a loss.
There is one other very important reason for trading the futures market rather than a non-exchange traded market such as those offered by spread betting firms. The futures markets are exchange traded and this means that they are fully transparent, i.e. everything is visible and above the table, I can see every single trade that happens. Imagine the trading pit, as it used to be when traders stood physically in a ring trading with each other.
When a trade is entered, the order goes into the pit and is represented there, free to be taken by any other market participant. We can all see what is happening, we trade with the same information and with the same advantages/disadvantages.
Now assume you are a trader who can only trade with one broker in the pit, you can trade as much as you like, any size you like, but he sets the spread he is willing to offer you and you have to trade at market (i.e. buy at his offer and sell at his bid). This broker doesn’t want to loose money, naturally, so he always makes his spread wider than the real market spread, he also, naturally, puts his interests before yours, so he won’t always be willing to trade when the market is moving fast and he is uncertain.
Remember whenever you make money he loses, so he is very careful to maintain his advantage at all times. Who wouldn’t want to be in this brokers position (he isn’t really a broker, though he claims to be)? When you trade with a real futures broker, all the broker does is facilitate your trade; he gives you the ability to have you orders represented in the pit. A real brokers concern is that they execute your order as efficiently as possible, that is their job, they do not take positions and they do not take the opposite side to you.
They naturally want you to make money because by making money you become a client who will continue to pay them commissions. Trading with a spread betting firm is absurdly costly, spread betting firms are like amusement arcades, they can be fun, but to imagine you are going to make your living from slot machines is illusory.

Off-floor trader Rick Redmont gained his first experience trading stocks as a college student during the bull market of 1961. “I had $10,000, which turned into $20,000. I followed the Chartcraft (Inc.) point and figure book-but it didn’t really matter what you bought. The only thing that made you mad was if your friend’s stock went up more than yours did.”
“Then in 1962, I started losing. The reason I was losing was because the stock market wasn’t going straight up anymore,” Redmont explained. “I turned $10,000 into $20,000 and $20,000 into $2,000.” Redmont jokes that his family members gave him books for Christmas that year with title like I was a teenage bankrupt. However, Redmont was spurred on by his financial setback. “I decided anything that had the potential to double my money and lose it all was worth learning about,” he said.
He launched into a study of “almost everything that has been written from 1900 to date” on trading and technical analysis. After graduate school, Redmont joined the brokerage business and remained a broker until several years ago, when he broke away to trade for his own account. One of the books Redmont read early on was the classic Technical Analysis of Stock Trends, by Edwards and Magee.
However, Redmont thought “intellectually, if it’s this easy-if all you have to do is look at head and shoulders, triangles and rectangleseverybody would be rich!”
Through his exhaustive reading of the materials available on financial markets and trading, Redmont happened upon a course offered by the Stock Market Institute that really hit home for him. “It is all based on the work of Richard D. Wyckoff. It teaches you how to use real point and figure charts and the origin was from floor traders back in the 1800s.”
“It teaches you the relationship of volume and price and point and figures. From there, I really learned how to understand how the market operates,” Redmont continued. Tbough he added, “I spent three years on this.” Additionally, Redmont notes that he enrolled in an Elliott wave course offered by C. Ralph Dystant and learned about an indicator called %D. Now, Redmont calls himself strictly a technical trader. “I use Wyckoff, I use Elliott, and the indicator I use is fast %D.”
Currently, Redmont trades “about 98% OEX options.” Redmont trades on an intraday basis, though he does hold positions overnight but overall, he tends to be a short-term trader. Throughout the day Redmont monitors five minute charts, 30-minute charts and 60-minute charts. “I look for divergences between the Dow, the OEX and the S&P (500).”
“I look at different time periods. I look at the premium. I look at the advance/decline line on a five minute basis and tick volume,” Redmont added. While Redmont bases his trading primarly on Wyckoff’s volume theories, he admits “there is no system. It’s total discretion-it’s as good as I am. I keep it simple. I buy calls and I buy puts. I don’t spread them. I just want to know what direction it is going.” Redmont champions Wyckoff’s volume theories saying “it works because it is the market. You are analyzing the law of supply and demand,” he explained.
To further explain a basic premise of Wyckoff’s volume theory, Redmont gives a simple example. “You are looking at a stock. It trades 10,000 shares and goes up one point on the first day. The same thing happens on the second day. On the third day, it trades 20,000 shares and goes up 1 point. On the fourth day, it trades 40,000 shares and goes up half a point. On the fifth day, it trades 80,000 shares and is unchanged.”
“On the third day, you had to exert twice as much effort to get the same result (as the first day),” Redmont noted. “The key to analyzing supply and demand is that the demand side burns itself out. There is no pressing reason, except being caught short, why someone should buy something. But, there are a million reasons to sell something.”
“When the buying is through and satisfied-there is always supply there. That’s why prices go down faster-because supply is always there and demand is not. All you have to do is withdraw people who want to buy and prices fall.”
While Redmont primarily trades OEX options, he believes that Wyckoff’s volume theories are just as applicable to the futures markets. “What difference does it make if you are analyzing the S&P or sugar or cotton or the Japanese yen-the analysis is the same,” he said. In his trading, Redmont notes he does monitor the size of market’s corrective retreats and rallies. “As (Fibonnaci numbers) became more popular, the markets started connecting 61.8% and 38.2%. Today, very rarely do they correct 50%.”
Based on work by Fibonnaci, many technical analysts have speculated that financial markets tend to move in sequences that can be measured by these numbers-including 61.8% and 38.2%. However, Redmont said, “these things work in the markets because people use them-it’s not because it’s mystic, or in plant life, or in the pyramids.” For example, in watching the markets, Redmont said, “if you have a move up and you have a correction, you want volume to drop off and you want that to fall into a 61.8%.”
While Redmont notes that Wyckoff theory works for him, he suggests potential traders read two books-Market Wizards and The New Market Wizards, by Jack Schwager. “Read them with one purpose in mind-to understand that there are 40 people who were successful doing different things.” When asked what some of the characteristics he believes are necessary to successful futures trading, Redmont answered, “dramatic concentration powers to understand the markets and to spend the time learning the niche of whatever it is they do.”

Now, let’s consider stock and stock options for a moment. Consider the ubiquitous XYZ Corp., currently trading at $95 per share on 2/1/03. If you pay $4 per share for a March call on 100 shares of XYZ at the $100 strike price, you have acquired the right to buy 100 shares of XYZ for $100 per share, any time before the third Friday in March. This cost you $400, plus commissions.
If XYZ is investigated for “irregular accounting practices” (the equivalent of discovering a toxic waste spill in the backyard), the share price may drop to $50. The call you paid $400 for is probably worth about $20. You’ve lost nearly 100% of your investment, and I wouldn’t count on getting it back. But you’ve only lost $400.
Imagine if you had owned 100 shares of XYZ stock. What was worth $9500 yesterday is now worth $5000. That’s a loss of $4500! Sure, you can wait for the stock to recover — there’s no time limit with stock.
The call, on the other hand, will expire worthless (or you’ll sell it for next to nothing) in a few weeks, but would you rather lose $400 or $4500? Would you prefer to hang on for years, waiting for XYZ to double in price so you can break even, or would you rather accept your $400 loss and move on to the next opportunity?
On the other hand, suppose XYZ announces that they’re coming out with the world’s first odorless, tasteless, wireless, weightless, invisible widget (the diamond mine in the rose garden). The stock jumps to $150. Now your call is worth about $6500. Not bad for a $400 risk.
Imagine if you had owned 100 shares of XYZ stock. What was worth $9500 yesterday is now worth $15,000. Awesome. But look at the percentages. The stock increased 58%. Incredible. A gain of $5500. But the call increased a whopping 1525%. A gain of $6100. Of course, these numbers are fictitious, unrealistic, and tailored to make a point.
Stocks don’t usually move like that. People rarely discover toxic dumps or diamond mines. But the point is that options move with the underlying, while costing you less and having a fixed, limited risk. Time is the one factor that is against you with options. It is the one gotcha you have to watch out for when buying options.
Selling Options
Now, let’s look at the same events from the seller’s viewpoint. First, let’s suppose that the seller of the XYZ call also owns 100 shares of XYZ stock. This is known as a covered call. It is considered a conservative options position. Many IRA accounts that will not even let you buy a call or put will still let you sell a covered call against stock you own.
So, our call seller owns 100 shares of XYZ and sells a call against it. The irregular accounting practices investigation is announced and the stock plummets. The seller is stuck holding a stock that just lost nearly half its value. The one consolation is that the call premium, the $400 received for selling the call, is his to keep. Very little consolation, actually.
Holding stock has inherent risks, as the last few years has made abundantly clear. Selling the call put cash in his pocket, independent of the risk of holding the stock. In fact, had he held the stock, and not sold the covered call, he would have been $400 worse off.
Given the same 100 shares of stock and one short (meaning he sold) call, let’s examine the diamond mine scenario. Here the stock shoots up over 50%. This is the part that makes call sellers very sad indeed. Instead of having a 50% increase in his stock, he has the $400 premium.
The call buyer is surely going to exercise his option to call the stock away from him at the strike price. That is, the call seller will have to sell his stock for $100, since that’s what the strike price of the call is, even though the stock is now worth $150. He sold, for $400, his right to enjoy that big move.
But that is an emotional loss, not a financial one. He still sold his stock at the anticipated price, and pocketed the $400 option premium, as well. The fact that the stock climbed above his strike price is disappointing, but not a loss of money.
Sometimes the stock goes up just a little, or hovers near the strike price. If the stock goes up to $102, the call seller sells a $102 stock at the $100 strike price, but has still pocketed $4 per share on the call, and still ends up ahead. If the stock is at or below $100 on expiration day, the short call expires worthless, and the call writer has both the stock AND the $400 option premium. He can then write another call against the stock.
Naked Options
Now let’s look briefly at the result of selling naked calls. In this scenario, the call writer simply sells the call and does not own any of the underlying stock to cover the short call. If the stock plummets, the call writer is very happy and relieved.
The premium of $400 is his to keep, and no one will be knocking on his door asking to buy the stock for $100 per share, since it is available on the open market for $50. It’s his ideal scenario. Actually, any stock price at or below the strike price will be in his favor.
However, here’s a very bad scenario. The call writer sells short a naked call. And the stock leaps 50%. He’s got big problems. Somebody’s going to want to buy XYZ from him for $100 per share, just as the option contract states.
But he doesn’t own any shares of XYZ. So he now has to go to the open market and buy 100 shares at the current market price, which is $150 per share. He took in $400 of premium and now has to cover is with a $15,000 stock purchase, for which he will only receive $10,000. He loses $4600 ($10,000 – $15,000 + $400). Not a happy ending.
Do NOT even consider selling naked calls. Your broker probably would not allow you to anyway. However, until you really know what you are doing, don’t sell naked puts either. When the bottom drops out of a market, naked put holders get very, very badly hurt. They are forced to pay high prices for low priced stock. You do NOT want to be in this position!
An option gives you something called leverage. Leverage is when you are able to control a large amount of money with a small investment. Each option contract lets you control 100 shares of stock for far less than the cost of buying those shares. But leverage is not the best reason to trade with options.
True, with the leverage that options afford you, you stand to risk less and make more, assuming things move in your favor AND in your time frame. Remember the expiration date! You have traded leverage for limited shelf life. If things don’t move your way soon enough, you lose. So, what is the main reason to trade options? Spreads!

Options are one of the oldest trading vehicles man has ever used. Around a 1000 B.C Aristotle Thales predicted by the stars that there would be a bumper olive harvest and bought options on the use of olive presses.
When the harvest did in fact prove to be a great harvest Thales was able to rent the presses at a significant profit.
When you buy an option you have the right but not the obligation to buy (call) or sell (put) a specific underlying asset at a prearranged price on or before a given date.
Similar to futures, options can give the holder protection against adverse price moves.
Call options when bought allow you to buy an asset at a fixed price (strike price) on or before a specific exercise date.
Exercise date: some options can only be exercised on a particular date and they are commonly know as European options. Options that can be exercised on or before the due date are commonly known as American options).
A Put options is the reverse of the call option. When you buy a put option it gives you the right but not the obligation to sell an underlying asset at a predetermined date.
Now let’s look briefly at the result of selling naked calls. In this scenario, the call writer simply sells the call and does not own any of the underlying stock to cover the short call. If the stock plummets, the call writer is very happy and relieved.
The premium of $400 is his to keep, and no one will be knocking on his door asking to buy the stock for $100 per share, since it is available on the open market for $50. It’s his ideal scenario. Actually, any stock price at or below the strike price will be in his favor.
However, here’s a very bad scenario. The call writer sells short a naked call. And the stock leaps 50%. He’s got big problems. Somebody’s going to want to buy XYZ from him for $100 per share, just as the option contract states.
But he doesn’t own any shares of XYZ. So he now has to go to the open market and buy 100 shares at the current market price, which is $150 per share. He took in $400 of premium and now has to cover is with a $15,000 stock purchase, for which he will only receive $10,000. He loses $4600 ($10,000 – $15,000 + $400). Not a happy ending.
Do NOT even consider selling naked calls. Your broker probably would not allow you to anyway. However, until you really know what you are doing, don’t sell naked puts either. When the bottom drops out of a market, naked put holders get very, very badly hurt. They are forced to pay high prices for low priced stock. You do NOT want to be in this position!
An option gives you something called leverage. Leverage is when you are able to control a large amount of money with a small investment. Each option contract lets you control 100 shares of stock for far less than the cost of buying those shares. But leverage is not the best reason to trade with options.
True, with the leverage that options afford you, you stand to risk less and make more, assuming things move in your favor AND in your time frame. Remember the expiration date! You have traded leverage for limited shelf life. If things don’t move your way soon enough, you lose. So, what is the main reason to trade options? Spreads!

Owning stock has only two, maybe three, possibilities. The stock goes up. Or the stock goes down. Or, as a third possibility, it does a little of both. If you buy a stock, all you want it to do is go up.
If you sell a stock short or close a position (or consider buying it and then decide not to , all you want it to do is go down. I call this one-dimensional trading. You’re long, you’re short, or you’re flat. Your gains and losses travel up and down the number line you may remember from elementary school in lock step with the movement of the stock. Not only that, but it takes a big move to make a big profit. And a big move against you can mean a big loss. Potentially all the way down to zero.
You need to add a second dimension to your trading. You need more choices than picking a direction and hoping you are right. You need to limit your losses, improve your returns, and increase your flexibility. You need options.
For many people, options are something to avoid, being dangerous, complex, and scary. I would like to introduce you to the joy of options. Any time you think you want to buy a stock, I’d like to get you in the habit of first looking at how you could do more with less using options.
In the stock and commodities markets, the type of option we just described would be known as a call. A call typically represents 100 shares of a stock. In the commodities markets, a single option contract represents a single futures contract. (For simplicity, from this point forward, I will talk about options on stock. Just remember that the same discussion applies to options on futures.)
Owning a call gives the owner the right to buy 100 shares (usually) of the underlying stock at the agreed upon strike price at or before the expiration date. (I say “usually” 100 shares because, due to splits or acquisitions, there are times when an options contract may represent something other than 100 shares.) Selling a call gives the seller the obligation to sell, if asked, 100 shares of the underlying stock at the agreed upon strike price any time up until the expiration date.
The other kind of option is called a put, and it is exactly the same as a call with one simple difference. A put gives the owner the right to sell 100 shares (again, usually) of the underlying stock at the agreed upon strike price at or before the expiration date. You can think of a put as insurance. No matter how badly the stock price crashes, having a put means that you can sell your stock for the strike price. On the flip side, selling that put means you may be obliged to buy stock at far more than its current market price.
An important distinction to always keep in mind: Buying an option gives you rights. Selling an option gives you obligations. Buying an option cannot cost you more than what you pay for the option. Selling an option can cost you far more than what you receive for selling the option.
Let’s examine the terminology of calls and puts. The underlying is the actual instrument such as a stock or commodity that is being represented by the options contract. In the real estate example, the house would be the underlying. Options are said to be derivatives because their value is directly tied to or derived from that of the underlying. An option has no meaning without an actual asset underlying it. It is the right to buy or sell that underlying asset that gives the option a reason for being and some value.
The strike price is the agreed upon price for which the underlying can be bought or sold under the terms of the option contract. In the real estate example, the strike price was $100,000. The expiration date, obviously, is the date when the option expires. The day after expiration, an option is worthless. This is the single most important fact about options that you must remember. This is why your friends think you are crazy for your interest in options. Unlike a stock, which you can hold forever, an option has a clearly defined shelf life.
One term remains, and that is the premium. The premium is what you pay for the option, when you are the buyer. Or what you receive for an option, when you are the seller. In our real estate example, the premium was $500. That’s what it cost you to hold the right to buy the house any time in that thirty-day period. The last day of the thirty-day period would, again, be the expiration date.
We have barely scratched the surface. I say that not to intimidate you, but to make you realize that you only have enough knowledge to be dangerous to yourself. Please do not think that you are ready to go out and buy calls or place spread trades. You are not. You don’t know how an option moves relative to moves in the price of the underlying. You don’t know what time does to the value of an option. You don’t know what volatility is or how it plays into option prices. You don’t know the types of spreads or what they are used for.
Please, please get yourself better educated before you start putting money into option trades. Resist the temptation to buy some cheap options, just to try it out. This is expensive education. There are plenty of advantages to trading options, but it’s still a ruthless market, happy to take your money, your wallet, and your hand if you give it an opportunity. Learn the rules of the game before you put money on the line.
Trading options can be satisfying, rewarding, stimulating, and fun. I invite you to add another dimension to your trading by including options to your repertoire.

Wouldn’t it be great if we could buy an option with five months left until expiration and sell an option with 2 months left until expiration for the same price? You couldn’t lose. Well we can’t. I love options spreads so much I realized something very important. We can buy a spread that has a lot of time value left at almost the same price as we can sell one with less time value left. The reason really opened my eyes and gave me new insight into options. Here is what I came to realize.
I started comparing how expensive options were in relation to the other strike prices in the same month and to the other months. I wanted to know based on th e price per day which options were more expensive.
The first 1 or 2 option months, as everyon e knows loses time value quickly. The at the money strike prices are very expensive compared to the out of the mon ey strike prices. Since there is not that much time left, how much can they charge for an out of the money option? Not much.
The next several months, the opposite is true. Compared to each other, the strikes that are closer to the money are cheaper in terms of price per day than the options further out of the money. Let me explain it another way using the S&P market.
6 days left at the money option cost 12 points
6 days left out of the money option cost 2 points
70 days left at the money option cost 43 points
70 days left out of the money option cost 29 points
There is more than 10X the time left but the 70 day at the money option (43 points) is only less than 4X the price than the 6 day at the money option (12 points).
The 70 day out of the money option (29 points) is almost 15X the cost of the 6 day out of the money option (2 points) but only has 10X the time value. We will buy the cheaper options and sell the more expensive ones.
Sell 6 day at the money and sell 70 day out of the money. Buy 6 day out of the money and buy 70 day at the money. This will be done for a 4 point debit. We are now buying a spread that has 10X more time value than the one we are selling and are only paying 4 points for it.
When the 6 day options expire we can sell the next month to take in more premium, still keeping the 70 day option spread.
What goes up, must come down! We have all heard this befo re in reference to the laws of Gravity. We have laws in the commodity markets as well. What comes down, must go up! The greatest traders of our time like War ren Buffet know this. He is perhaps the greatest Stock trader ever. He had never traded commodities until a few years ago. He bought silver in the futures market. When the market went even lower he bought more. The “smart money”, commercials will not be scared into selling when a market they have purchased drops even further. They know better than anyone that a commodity has real value and will always be worth something.
There is a famous book, “You Can’t Lose Trading Commodities”. The author buys commodities and then just waits for the market to go higher. He would purchase more as the market fell.
You need a big bankroll for this. Personally I know corn won’t go to $1.00 but what if it did? I want to minimize the risk in case I want to end the trade.
I started trading the Soy Complex this way several years ago. Not with options. Strictly futures. I bought what was similar to a crush spread. I increased the contracts as the market went against me until the spread rebounded a little. Since I increased the contracts I didn’t need the market to come back to where I started. It only had to rebound to the next level.
Black Jack players did this until Casinos caught on and put limits on bets. It is a known fact that futures traders make good gamblers and professional gamblers make good futures traders. I am against gambling but even gambling done with a system is not really gambling.
These card players would bet something like this: $5 lose, $10 lose, $20 lose, $40 lose, $80 win. The losses add up to $75. They would win $80, so the profit is $5. Not a lot, but they would do this all day. Black Jack is just under 50% probability for the player.
The problem is there is a slight chance that you could lose 40 times in a row. Now with Commodities we have a 50% probability and we won’t lose 50 times in a row because the market can’t go b elow zero.
Now before I go an y further, I need to tell you that I am not recommending you double down on your trades. What you can find are mark ets that are near their lows where you can do a small scale trade. Spreads offer even better opportunities. They have a closer range (high to low).
By now you can see we only use this to go long a market since we can never b e sure how much a market can go higher. First we need to find a market that is low already so we won’t have to wait that long and also so there will be less capital needed. I prefer to trade this using options. There are many ways to do this. You could buy an option in a market like soybeans and choose how many cents the market will drop before you buy more. The problem is, an option is a wasting asset. The Theta (time decay) would cause you to lose money.
I use spreads so I am not paying for time decay. I will probably sell more Theta than I buy, so if the market does nothing I will make money just on time decay.