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Home / Education / Futures & Options Strategy Guide / How to Use This Guide

How to Use This Guide

Futures & Options Strategies Guide Overview

This publication was designed, not as a complete guide to every possible scenario, but rather as an easy-to-use manual that suggests possible trading strategies.  One way to use it effectively is to follow these simple steps:

1.  Determine Your Market Outlook.

Are you generally bullish, bearish, or undecided on future market moves?

2.  Determine Your Volatility Outlook.

Do you feel that volatility will rise, fall, or are you undecided?

3.  Look Up the Corresponding Strategy on the Appropriate Table.

Whether you are initiating a position or trying to follow up a current position, line up the correct row and column on the proper table to find a strategy that will help you make the most of your outlook.

4.  Determine the “Best” Strike Price.

By analyzing your market and volatility outlook further you should be able to select the option strike that provides the best opportunity.  The Guide does not go into detail on selecting the best strikes.  You can do this by calculating a few “What-If” scenarios.

Learn 21 futures and options trading strategies in this complimentary,  easy-to-read guide. Download Now >>

Some Things You Should Be Aware Of:

  • In addition to breaking down market analysis into two main questions (“What is your market outlook?” and “What is your volatility outlook?”), you must also consider margin requirements, commission costs, taxes and execution costs, as well as other possible factors.
  • The follow-up strategies in this Guide are usually “One Trade” changes.  In other words, we asked: “How can a trader transform a position into a more desirable position with just one trade?” We did, however, bend this rule a little when one trade produced no acceptable strategy.
  • Although you may be able to transform a trade with just one transaction, the resulting position can contain options at strikes that may or may not be appropriate for your new outlook.
  • The ratio spreads and ratio backspreads are strategies that do not fit neatly into one of the nine scenarios.  Therefore, a trader MUST analyze these strategies in greater depth.  The strikes chosen bear greatly on the resulting profit/loss.  Do several “What-If” scenarios before using these strategies.
  • There are many other strategies, such as: calendar spreads, condors, Christmas trees, and option strips that are not addressed here.  While they are all valid strategies, they do not fit neatly into this approach.
  • The suggested strategies on the following pages are just that – suggestions.  Because of limited space, the strategies suggested may or may not the “best” ones for your trading plan.

How to Use The Tables

On the next page is a table suggesting strategies to use when “Initiating a Market Position.” Let’s go through an example: A trader has been watching a major increase in the value of the S&P 500® futures contract and feels the market is poised for a minor downward move.  A small market drop with volatility dropping and futures leveling off is this trader’s outlook.

The market scenario is bearish.  The trader looks across the top of the page and finds “BEARISH.”

The volatility scenario is down.  The trader looks down the left of the page and finds “VOLATILITY FALLING.”

The trader lines up the BEARISH colum with the VOLATILITY FALLING row and finds two possible suggested market scenarios: Number 6, SHORT CALL, and Number 18, RATIO PUT SPREAD.

The trader now does a number of “What-If” scenarios to determine the best strike, the profit objective and loss tolerance before making any trading decisions.

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Futures & Options Strategies

  • Long Futures
  • Long Synthetic Futures
  • Short Synthetic Futures
  • Long Risk Reversal
  • Short Risk Reversal
  • Long Call
  • Short Call
  • Long Put
  • Short Put
  • Bull Spread
  • Bear Spread
  • Long Butterfly
  • Short Butterfly
  • Long Iron Butterfly
  • Short Iron Butterfly
  • Long Straddle
  • Short Straddle
  • Long Strangle
  • Short Strangle
  • Ratio Call Spread
  • Ratio Put Spread
  • Ratio Call Backspread
  • Ratio Put Backspread
  • Box or Conversion

Contents Courtesy of CME Group.

Risk Disclosure

WHEN INVESTING IN THE PURCHASING OF OPTIONS, YOU MAY LOSE ALL OF THE MONEY YOU INVESTED.

WHEN SELLING OPTIONS, YOU MAY LOSE MORE THAN THE FUNDS YOU INVESTED.

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Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

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