Tuesday, April 16, 2013

Futures Weeklys Option Premium

Another reason why we do not ever hold Weeklys Options on Futures overnight. First of all there was a gap down. Second, and more importantly, we had all the time in the world to make a profitable trade during market hours. The option tested the MA's once, had a nice bounce, but with all our indicators in particular Woodie's CCI of the option ((very small *hard to see here, but there was a Trendline Break (TLB) overnight, Zero Line Break (ZLB), and Slingshot (the TCCI crossed zero & the CCI had a Zero Line Reject (ZLR); three confirmations = very good trade!) and furthermore the realization that the underlying (/ESM3) had held support at VAL & PP. We could have sold this option and held with confidence through the close. We would obviously recommend a spread for most traders when entering this type of position, unless you are very familiar with the trading system, and ultimate risk you are taking on (infinite, Market could continue to go up,up,up). As always, we close our positions within eight minutes after the closing bell on Wall Street. Holding positions longer than this opens you up to very big risk as the spreads will continue to widen the last seven minutes of trading. After the fifteen minute break they are trading with spreads so wide it is pointless.