This is a sample entry from Don DeBartolo’s email newsletter, Trade Spotlight: Options, published on Tuesday, April 24, 2018.
Coffee Put Option
The July 2018 Coffee contract retraced to an upper trend line. While the market is trading above a 20-day Moving Average, it’s trading below the 50-day Moving Average. The upper trend line with several touches and the 50-day Moving Average should act as a strong resistance level. This lines up with a seasonal tendency to be short futures through the end of May. While the Stochastic indicator is showing Momentum to the upside and the MACD indicator is above the baseline, the Trend Seeker is Down. The market had a similar construct last year before selling off following that seasonal tendency.
Let’s purchase an inexpensive option just two strikes away from being in the money. This market can be quite volatile so buying a put option allows zero risk outside of the premium paid and avoids the use of stop losses or margin requirements.
Buy the July 2018 Coffee 115.00 put for 100 points or $375, GTC.
No margin requirement. Option expiration is June 08, 2018 (45 days). Delta is .2357.
Maximum Risk: Risking the full amount of $375, not including commissions & fees.
Maximum Profit: Unlimited, not including commissions and fees.
July 2018 Coffee Chart from Bar Chart
Contact your Daniels Trading broker by phone or email to place this trade.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADE PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF THE HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
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.
This material is conveyed as a solicitation for entering into a derivatives transaction.