"Honesty and communication are fundamental to successfully navigating today's markets"
– Sean Feighan
Futures & Options Broker
1. Long Futures
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Scenario:
This trader feels that Live Cattle futures are poised for a rally. The implied volatility of the options is relatively high, but the trader does not expect it to come down soon. Therefore, he decides to buy one futures contract.
Specifics:
| Underlying Futures Contract: | April Live Cattle |
| Futures Price Level: | 73.00 |
| Days to Futures Expiration: | 75 |
| Days to Options Expiration: | 55 |
| Option Implied Volatility: | 16.2% |
| Position: | Long 1 Futures |
At Expiration:
| Breakeven: | 73.00 (original futures price) |
| Loss Risk: | Unlimited; losses increase as futures fall. |
| Potential Gain: | Unlimited; profits increase as futures rise. |
Things to Watch:
Changes in implied volatility have no effect on this position. If the trader has an opinion on volatility, he may consider another strategy. Another strategy may increase potential profits and/or reduce potential losses. Check the next page for suggested follow-up strategies.
Follow-up Trading Strategies
MENU - Futures Strategy Guide
Contents Courtesy of CME.com