When it comes to trading stock options, traders defer to the Greek language to address risk. Are you familiar with “option Greeks?” In this article, we’ll teach you about the four Greek risk measures of equities options: delta, gamma, theta, and vega. 1. Delta Delta is the rate of change of a stock option’s price with respect to a change in the underlying stock price. In other words, as stock price changes, the option premium does the same. This relationship is represented as a numerical delta value. Deltas are assigned to calls and puts as follows: Calls When the underlying stock of a call option rises, the value of delta increases. Why? Because as a call option’s stock price rises, so does the premium. Delta has a … [Read More...]
Understanding the Impact That Stock Option Time Decay Has on Stock Options
Options contracts are unique financial instruments. One thing that makes them different from forex pairs, ETFs, or stocks is that they have a finite expiration date. And, upon reaching expiry, all option contracts become untradeable. Read on to learn more about stock options time decay and how it can impact your equities market risk exposure. What Is Time Decay? According to Investopedia, time decay is “a measure of the rate of decline in the value of an options contract due to the passage of time.” Time decay is represented by ?, the Greek letter theta. So why do options contracts lose their value over time? The answer is simple: expiration. Remember, options are perishable financial instruments. When they reach expiration, they are settled and become untradeable. … [Read More...]
Bearish and Bullish Options Trading Strategies
In the financial markets, you can have three opinions about price: bullish, bearish, and neutral. No matter the market, volatility, or news cycle, these three biases are the end products of market analysis. Here’s a brief look at each type of market bias: A bullish bias is one that anticipates rising asset prices. If you’re bullish, you want to be long the market. A bearish bias is one that anticipates falling asset prices. If you’re bearish, you want to be short the market. A neutral bias is noncommittal. If you’re neutral, you don’t want to be long or short the market. Let’s learn more about how you can use stock option trading strategies to cash in on your bullish and bearish market biases. Bullish Stock Options Strategies … [Read More...]
When to Use Short vs. Long Futures Commodity Contracts
In the live futures markets, a trader has two basic choices: buy or sell. When you buy a futures contract, you are “going long” the market in the hopes that prices will rise. For most people, this is the traditional, intuitive mode of capital investment. But what does it mean to short a futures contract? Read on to learn more about when selling futures may be your best course of action. Buying vs. Selling Here’s a brief look at the functionality of buying and selling: Buy When you buy a commodity futures contract, you’re making a commitment to assume possession of an underlying asset on a forthcoming date in time. For instance, if you purchase one lot of West Texas Intermediate (WTI) crude oil, you’re pledging to … [Read More...]
The Nuances of WTI Crude Oil Contract Specifications
The Chicago Mercantile Exchange (CME) is a global leader in the trade of derivative products. One of the CME’s most popular offerings is West Texas Intermediate (WTI) crude oil. Listed as a standardized futures and options contract, WTI is the world’s benchmark for the trade of light sweet crude. For aspiring energy traders, understanding WTI crude oil contract specifications is imperative. In this blog post, we’ll break down the trading essentials for these exciting derivative markets. CME Futures and Options WTI Crude Oil Contract Specifications In the realm of active trading, WTI crude oil futures and options are exceedingly popular products. No matter whether you’re interested in speculating on price movements or hedging risk, CME WTI futures and options can help. WTI Crude Oil Futures West Texas … [Read More...]
When Is Buying Futures Contracts a Good Idea?
If you’ve ever purchased a car, house, or other big-ticket item, then you’re aware of the commitment such an action entails. Buying futures contracts is no different — it is a serious business that requires you to secure financing, actively budget, and apply leverage. If done competently, however, “going long” a futures market can pay big dividends. Read on to learn more about buying a futures contract and how doing so may be a potentially lucrative approach to the market. The Ins and Outs Of ‘Going Long’ the Market At any given time, a futures trader can do two things in the market: buy or sell a contract(s). According to industry nomenclature, when you buy a contract, you’re “going long” the market, and when you sell … [Read More...]
Avoid the “Pattern Day Trader Rule” with CME Equities Futures
A day trader is someone who repeatedly implements short-term intrasession trading strategies to secure profitability. Day traders target the world’s premier financial venues, specifically the stock, currency, commodity, and debt markets. Although the profession can be lucrative, it is also controversial. Two of the most popular markets earmarked by day traders are the New York Stock Exchange (NYSE) and the NASDAQ. Each offers vast opportunities in the trade of shares, indices, and exchange-traded funds (ETFs). However, when it comes to day trading, CME equity futures offer a collection of unique advantages over these traditional venues. For retail participants, one of the biggest upsides is avoiding the pattern day trader rule. What Is the Pattern Day Trader Rule? According to the U.S. Financial Industry Regulatory … [Read More...]
U.S.-China Trade War Timeline: Is the War Over in 2021?
Daniels Trading is nonpartisan and does not endorse political candidates. The purpose of this blog post is to provide objective, unbiased information on what we believe could happen in the markets. The content is not intended to convey a preference or state a position in support of any candidate, and the sentiments expressed do not necessarily reflect the viewpoints of our team members. The 2020 U.S. presidential election was a historic event that brought record turnout and a contested outcome. Democratic candidate Joe Biden became the 46th president, and a new era of economic, environmental, and trade policy began. Perhaps the largest question about this new era among industrial and financial market participants pertained to the U.S.-China trade war timeline. Read on to learn more… [Read More...]
Is Trading Futures Superior to Trading Leveraged ETFs?
The capital markets feature a vast array of products, each designed to fulfill a certain purpose. Whether you’re interested in making long-term investments, holding intermediate-term positions, or engaging in short-term intraday trading, there is a security well suited to your goals. Two of the most popular are futures contracts and leveraged ETFs. What Is a Futures Contract? A futures contract is a legally binding, exchange-traded financial product. It outlines the purchase or sale of a specific quantity of an underlying asset at some forthcoming point in time. All futures are assigned an expiration date, and the contract ceases to be tradable when that date is reached. With futures, traders are able to secure bullish or bearish market exposure by either buying or selling … [Read More...]
Understanding How Futures Margin Requirements Evolve with Market Conditions
Futures contracts are leveraged securities that enable traders to control a large quantity of an underlying asset with minimal cash. To facilitate these transactions, the trader makes a good-faith deposit known as a margin. If you’re going to trade futures, then it is important to understand that margins are dynamic?as market conditions evolve, so do they. Read on to learn more about the functionality of futures margin requirements. Who Determines Futures Margins? When it comes to financial derivatives, margin requirements are key elements that influence many aspects of trading. As a general rule of thumb, the lower the margin, the greater a trader’s capital efficiency. And, although leveraging a small amount of money into larger returns is attractive, it is also risky. Margin requirements protect the … [Read More...]
The Ins and Outs of Trading a Bear Put Spread
For many traders, options spreads are ideal ways of securing affordable market exposure while minimizing downside risk. In this article, we’ll cover the essential ins and outs of using a bear put spread. What Is a Bear Put Spread? A bear put spread is a multifaceted options trading strategy designed to profit from declining asset prices. When executing this strategy, a trader buys put options while simultaneously selling puts with a lower strike price on the same contract. This approach provides a way to secure bearish market exposure by buying and selling options contracts based on a common asset with identical expiration dates. To illustrate how the strategy functions, assume that Ron the energy trader believes that persisting COVID-19 fears will hurt global oil demand in the … [Read More...]
Profitability 101: What Is Unrealized Gain & Loss in Futures?
In futures trading, traders have two ways to measure profitability: realized and unrealized gain and loss. Realized gains and losses are those that are actually booked to the trading account; unrealized gains and losses are a running tally of a position’s success or failure. For active traders, staying on top of the latter is imperative to competently managing risk in the live market. How Do Open Positions Impact My Unrealized P&L? If you’re familiar with sports, then you understand the concept of keeping score. As one side outperforms or lags behind the other, the discrepancy is reflected on the scoreboard. A single trade works much the same way—a position’s success or failure ebbs and flows as price action evolves. This is recorded as unrealized profit and … [Read More...]
StoneX School of Futures – Day 10
Contact Daniels Trading To open an account or request more information, contact us at (800) 800-3840 or info@danielstrading.com and mention Daniels Trading. Risk DisclosureTHIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION. THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND … [Read More...]
Top Tips for Trading Candlestick Patterns
Candlestick patterns are among the most frequently used technical tools by active futures traders. No matter the strategy?whether it is trend, rotational, or reversal?chart patterns can be valuable for position management or market timing devices. Let’s take a look at the top three tips for trading Japanese candlestick chart patterns. Tip No. 1: Be Aware of Volume Trading volume is the total number of shares, contracts, or lots that have changed hands over a given period. Traded volumes may be measured on any time frame, from minute-by-minute to yearly durations. In practice, volume tells us two things about the market conditions of a security: High volume: High or “heavy” volumes are indicative of liquid and volatile markets. Tight bid-ask spreads and reduced slippage are common … [Read More...]
The Basics of Equity Futures Trading
Enjoying success in futures, options, forex, and equity trading requires a collection of unique attributes. And, although “buying low and selling high” (or vice versa) might sound easy, doing so over the long run is a major accomplishment. In fact, many traders spend huge sums of money and years pursuing this goal before finally quitting the markets altogether. However, if you become familiar with a few basic tenets of active trading, achieving longevity in the marketplace is possible. Read on to learn tips vital for building a rock-solid trading foundation. Tip No. 1: Go with the Flow Although “the trend is your friend” is often considered a cliché, it is still great advice. However, despite the winning track records of countless trend followers, many traders choose to … [Read More...]
When Should You Consider Buying and Selling Options?
Unlike other securities, options feature a collection of unique functionalities. An options contract provides the trader the opportunity to open leveraged bullish or bearish positions in a variety of markets. If done correctly, buying and selling options contracts can be lucrative, producing consistently positive returns. However, before diving into the market with both feet, you need to understand a few options basics. Read on to learn options essentials and get some tips on when you should buy or sell an options contract. An Options Primer An options contract is a legally binding agreement between a buyer and seller that outlines the terms of a forthcoming exchange. It is defined by the underlying asset, its price (strike price), quantity, function (call or put), directive (buy or sell), and … [Read More...]
What Is a Butterfly Spread Option Strategy?
Butterfly spread strategies give traders powerful ways to engage the futures and options markets. Featuring applications for trading both bullish and bearish opinions, these types of spreads are ideal for limiting risk while pursuing nearly any financial goal. However, be forewarned?the market doesn’t hand out free lunches, and spread trading is no exception. What Is a Butterfly Spread Option Strategy? A butterfly spread is the combination of multiple bull and bear spread options strategies. Essentially, it’s a “net-neutral” market play because calls and puts are bought and sold simultaneously. In the event that the underlying asset’s price doesn’t exceed an expired range at expiry, the position closes in the money. If an unexpected breakout occurs, the total risk is the contract premiums plus the written exposure. … [Read More...]
Fundamental Analysis and Position Trading
In the world’s financial markets, fundamental analysis is a go-to methodology for legions of active participants. When coupled with position trading strategies, the two disciplines provide a robust framework for consistent decision-making. Read on to learn how fundamental analysis and position trading can help you achieve your market-oriented objectives. What Is Fundamental Analysis? Fundamental analysis is the study of external information to determine a security’s intrinsic value. Intrinsic value is what an asset is really worth, not necessarily its price. By scrutinizing relevant market factors, or underpinnings, fundamental traders attempt to cash in on discrepancies between price and value. One of the critical duties fundamental traders are tasked with is identifying pertinent data. Vast stores of information are at the modern trader’s fingertips, which … [Read More...]
Steps for Energy Trading and Risk Management
In the capital markets, the term “risk” means different things to different people. At the exchange level, risk is a function of systemic liquidity. For institutional investors, it’s a degree of market exposure. For retail traders, risk is the amount of money in harm’s way at any given time. However, no matter your role in the marketplace, one thing is certain: You must actively manage risk. For instructive purposes, there may be no better place to examine the concept of risk than in the energy markets. Read on to learn more about energy trading and risk management at the exchange, institutional, and retail levels. Promoting Market Liquidity As the world’s largest derivatives marketplace, the Chicago Mercantile Exchange (CME) facilitates billions of dollars worth of transactions each business … [Read More...]
Do Gold Prices Always Go Up During a Recession?
According to Forbes contributor David Rodeck, a recession is a “significant decline in economic activity that lasts for months or even years.” Formally, a recession is defined as being two or more quarters during which economic activity contracts. Symptoms of a recession include rising unemployment, falling personal incomes, and lagging industrial output. Although recessions are an unavoidable part of the economic cycle, they can bring intense pain to people and financial markets. One tried-and-true hedge against the negative impacts of such downturns is the acquisition of gold. As a general rule, gold prices appreciate during challenging financial times. But is this always the case? In this blog post, we’ll examine two recent examples of how bullion reacts during severe recessions. The Global Financial Crisis … [Read More...]