This is a sample entry from Don DeBartolo’s email newsletter, Trade Spotlight: Spreads, published on Thursday, June 22, 2017.
There is a futures spread trade opportunity in the Lean Hogs market. Selling the spread on a breakout of a 1-2-3 Top Formation. There is also a seasonal tendency for this spread to sell-off in this time period. The MACD and Stochastic indicators show a shift in trend and momentum to the downside.
Establishing a bearish position where a front month contract is sold and a deferred month contract is purchased. Anticipating the spread to narrow toward zero. Setting up a futures spread will potentially reduce the risk and volatility (the meats sector has been quite volatile as of late), as well as reducing the margin requirement
Sell the August 2017 / Buy the February 2018 Lean Hog spread at 12.900 using a stop order, GTC.
Initial Margin = $1,210 Maintenance Margin = $1,100
Stop loss: Stop loss is 15.750 points, above the number three point, GTC. ($1,140)
Target: Target is 6.500 points, the twelve month contract low, GTC. ($2,560)
Lean Hogs Spread Chart from Bar Chart
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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.
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