1
Trading Analysis / Re: IDENTIFYING an OPPURTUNITY
« on: October 18, 2022, 12:46:11 pm »
STRATEGY 2:
There are many strategies of course - you don't have to use options; you can trade it with straight futures as well.
But let's say this is something like Crude Oil. And because of our east-bloc friend and his silly war, the implied volatility on Crude Oil, and therefore options prices, are exorbitantly expensive. In that case buying three options, or straight futures, might be too much for my account. And shorting options will require like $36,000 !!???
Well, now I just use a less risky strategy!! I use a BULL CALL SPREAD. So I buy an option ATM, and then I sell an option one strike higher OTM.

Now my risk is only $250 per contract. Depending on my account, maybe I'll now enter 5 contracts - for a margin requirement of $1,250
And if prices moves only slightly up - lets say in the next 2/3 days:

I am sitting on a small $50 profit. And so now I sell four (4) of my contracts:

And this is how my remaining position looks like:
I am sitting on $250 profit overall
I can lose about $30 on this trade - but it is a long way off
I can afford to let my "potential" winner run - I can make $420 here, and only risk $30
There are many strategies of course - you don't have to use options; you can trade it with straight futures as well.
But let's say this is something like Crude Oil. And because of our east-bloc friend and his silly war, the implied volatility on Crude Oil, and therefore options prices, are exorbitantly expensive. In that case buying three options, or straight futures, might be too much for my account. And shorting options will require like $36,000 !!???
Well, now I just use a less risky strategy!! I use a BULL CALL SPREAD. So I buy an option ATM, and then I sell an option one strike higher OTM.

Now my risk is only $250 per contract. Depending on my account, maybe I'll now enter 5 contracts - for a margin requirement of $1,250
And if prices moves only slightly up - lets say in the next 2/3 days:

I am sitting on a small $50 profit. And so now I sell four (4) of my contracts:

And this is how my remaining position looks like:
I am sitting on $250 profit overall
I can lose about $30 on this trade - but it is a long way off
I can afford to let my "potential" winner run - I can make $420 here, and only risk $30