This is a sample entry from Don DeBartolo’s email newsletter, Trade Spotlight: Spreads, published on Tuesday, May 16, 2017.
There is a futures spread trade opportunity in Sugar. This particular spread traded down to setup a two year low recently. There is a seasonal for the front month contracts to advance on the deferred month contracts in the near term. The stop loss will be placed below the spread low. The MACD indicator shows the beginnings of an uptrend. The Stochastic indicator shows bullish momentum.
Establishing a bullish position where a front month contract is purchased and a deferred month contract is sold. Anticipating the spread to widen toward zero, then positive. Setting up a futures spread will potentially reduce the risk and volatility, as well as reducing the margin requirement.
Buy the October 2017 / Sell the October 2018 Sugar spread at -.54 using a stop order, GTC.
Initial Margin = $1,210 Maintenance Margin = $1,100
If filled:
Stop loss: Stop loss is -.94 points, below the contract low, GTC. ($200)
Target: Target is .60, near a 50% Fibonacci Retracement, GTC. ($570)
Sugar Spread Chart from Bar Chart
Risk Disclosure
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.
STRATEGIES USING COMBINATIONS OF POSITIONS, SUCH AS SPREAD AND STRADDLE POSITIONS MAY BE AS RISKY AS TAKING A SIMPLE LONG OR SHORT POSITION.
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