This is a sample entry from Brian Cullen’s email newsletter, The Cullen Outlook.
March 2013 / October 2013 SUGAR spread
I would like to re-visit the sugar spread that we recently traded but move into 2013. If you recall we were long front month October 2012 and short March 2013. I continue to like the thought process behind this trade but would prefer to give this more time to develop.
The fundamentals continue to look strong for the sugar market long term. Near term concerns have been eased a bit as South American and Australian production may soon be back on track. Weather problems may still be a cause for concern later in the year, so we will look to 2013 for our next spread.
We will be trading 2 spreads.
- BUYING the MARCH 2013 contract
- SELLING the OCTOBER 2013 contract
Premium of 55 points to the BUY SIDE
- Risk will be the 30 point level (STOP ON CLOSE) … ($560.00) on 2
- OBJ will be the 1.30 level (LIMIT ORDER) … $1,680.00 on 2
Initial margin is $385.00 per spread. However, I would recommend having margin for a full contract before entering this spread.
Have a look:
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
THE RISK OF LOSS IN TRADING COMMODITY FUTURES AND OPTIONS CONTRACTS CAN BE SUBSTANTIAL. THERE IS A HIGH DEGREE OF LEVERAGE IN FUTURES TRADING BECAUSE OF SMALL MARGIN REQUIREMENTS. THIS LEVERAGE CAN WORK AGAINST YOU AS WELL AS FOR YOU AND CAN LEAD TO LARGE LOSSES AS WELL AS LARGE GAINS.
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