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IO Weekly Technicals Review [2024/44]: Set For Large Move SGX TSI Iron Ore CFR China (62% Fe Fines) Index Futures (“SGX IO Futures”) expiring in December rose last week, up by USD 0.54/ton on Friday, though prices gave up some gains by the end of the week. SGX IO Futures opened at USD 101.60/ton on 28/Oct (Mon) and closed at USD 102.14/ton on 01/Nov (Fri). Prices briefly touched a weekly high of USD 104.60/ton on 29/Oct (Tue) and a low of USD 101.30/ton on 28/Oct (Mon). It traded in a range of USD 3.30/ton during the week, which was smaller than the prior week. Prices traded just above the pivot point of USD 103.70/ton for most of the week before falling below it on Friday. Volumes were noticeably lower in the later part of the week. Highest volume was observed on 30/Oct (Wed). SGX Iron Ore Futures Fundamentals in Summary China’s parliament has started its five-day meeting on 4/Nov (Mon) and is expected to announce the details of the fiscal support on 8/Nov (Fri). Analysts suggest the fiscal plan could reach 10 trillion yuan (USD 1.4 trillion), with most funds likely allocated to refinancing local government debt. The outcome is likely to drive significant volatility during the week. China’s manufacturing PMI rose from 49.8 to 50.1 in Oct as the manufacturing sector shifted into expansion after 5 months of contraction. Non-manufacturing PMI also rose to 50.2 from 50.0. Steel industry PMI rose to 54.6 from 49 in prior month. The PMI reading was the highest since July 2018. The output index rose to 63.6 suggesting the stimulus helped boost steel production. Caxin’s China manufacturing PMI rose from 49.3 to 50.3 in October recovering from the dip in September. IO China Portside inventories rose by 770k tons to 150.1 million tons last week. The pickup volume declined further by 13k tons. Accumulating inventories pose a risk to IO demand. Based on seasonality, SGX IO Futures Dec contract trades 3.6% higher than its last 5-year average (USD 99.31/ton). Short-Term Moving Averages Signal Bearish Trend Prices recovered following the bearish MA crossover on 22/Oct but failed to rise above the 21-day moving average. The 21-day moving average served as a resistance level throughout last week. Long-Term Averages Provide Support Prices shot above the 100-day moving average on 28/Oct (Mon) and managed to hold above this level for the rest of the week. Price re-tested this support level on 4/Nov (Mon) but seems to be holding above it for now. MACD Points to Fading Decline The MACD suggests a weakening bearish trend, with the short-term MA positioned just below the long-term MA. However, both MAs are trending downward, making a bullish crossover unlikely without a sharp rally. The long-term MA may serve as support. The RSI is near a neutral level at 51.02. Fibonacci 38.2% Tested Last Week Following the retracement of the bearish trend since the start of October, prices rallied to the 38.2% Fib level but failed to surpass it. This could indicate a continuation of the bearish trend. Though, the USD 100/ton level may provide psychological support. Price Trading Just Below Volume Point of Control Sellers continued to dominate trading despite an uptick in buyers early last week. Price faced resistance at the volume point of control for October (USD 103.55/ton). There is another area of volume concentration at (USD 101.15/ton) which could provide near-term support. Bollinger Bands Narrowing with Low Volatility Bollinger Bands for IO futures are narrowing and their width is near the lowest contraction since August, increasing the likelihood of a sharp breakout. Price is currently at the mid-point of the Bollinger Bands. Historical Volatility also continued to decline last week and reached its lowest level since August. Iron Ore Options Favor Calls SGX IO options expiring in December have an OI put/call ratio of 0.86 as of 1/Nov which favors calls. Over the past week, trading in this contract was heavily skewed towards call with a volume put/call ratio of 0.38. Additionally, last week, near-term options expiring in November saw a large buildup of call options around the USD 105 strike suggesting bullish sentiment in the near-term. The delta-25 options skew for December options also shows a sharp increase in call IV alongside a narrowing skew suggesting high demand for calls. Hypothetical Trade Setup Iron Ore volatility has reached its lowest level since August. The rally last week failed to continue past the short-term moving average and the volume profile point of control and IO gave up substantial gains in the later part of the week despite the encouraging data from PMI releases. The results of the ongoing parliamentary meeting are expected on 9/Nov (Fri) and are likely to drive substantial moves in prices. Options activity over the last week showed a high concentration of activity for call options, especially at the strike level of USD 105/ton. The IV for IO options has also been rising unlike the historical volatility. A sharp upside move is likely, though, if the fiscal stimulus disappoints, prices may also decline sharply. Expressing the bullish view through a long futures exposes the position to higher risk if stimulus disappoints. Investors can instead express the bullish view using SGX IO options. A bullish call spread benefits from an increase in prices and offers a fixed upside and fixed downside along with a smaller premium cost than a long call position. Bullish call spread consists of long call at a lower strike and short call at a higher strike. A hypothetical trade setup consisting of USD 105/ton for the long call leg and USD 109/ton for the short call leg on the options contract expiring on 31/Dec offers a reward to risk ratio of 3x. The USD 109/ton level coincides with the peak during the last rally in mid-October and is close to the 200-day moving average, prices could face resistance above this level. This position offers a max profit of USD 299/lot and a max loss of USD 101/lot and breaks even when prices rise above USD 106.1/ton. DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
SGX:FEF2!Long
by MintBulkCommods
Options Blueprint Series: Tailoring Yen Futures Delta ExposureIntroduction In options trading, a Bull Call Spread is a popular strategy used to capitalize on price increases in the underlying asset. This strategy involves buying a call option at a lower strike price while simultaneously selling another call option at a higher strike price. The net effect is a debit trade, meaning the trader pays for the spread, but the risk is limited to this initial cost, and the profit potential is capped by the sold call option's strike price. For traders interested in Japanese Yen Futures, the Bull Call Spread offers a way to potentially profit from expected upward movements while managing risk effectively. Delta exposure, which measures the sensitivity of an option's price to changes in the price of the underlying asset, is a crucial aspect of this strategy. By carefully selecting the strike prices of the options involved, traders can tailor their delta exposure to match their market outlook and risk tolerance. In this article, we will delve into the mechanics of Bull Call Spreads, explore how varying the sold unit's strike price impacts delta exposure, and present a practical case study using Japanese Yen Futures to illustrate these concepts. Mechanics of Bull Call Spreads A Bull Call Spread is typically constructed by purchasing an at-the-money (ATM) call option and selling an out-of-the-money (OTM) call option. This strategy is designed to take advantage of a moderate rise in the price of the underlying asset, in this case, Japanese Yen Futures. Components of a Bull Call Spread: Buying the ATM Call Option: This option is purchased at a strike price close to the current price of the underlying asset. The ATM call option has a higher delta, meaning its price is more sensitive to changes in the price of the underlying asset. Selling the OTM Call Option: This option is sold at a higher strike price. The OTM call option has a lower delta, reducing the overall cost of the spread but also capping the profit potential. Delta in Options Trading: Delta represents the rate of change in an option's price concerning a one-unit change in the price of the underlying asset. For call options, delta ranges from 0 to 1: ATM Call Option: Typically has a delta around 0.5, meaning if the underlying asset's price increases by one unit, the call option's price is expected to increase by 0.5 units. OTM Call Option: Has a lower delta, typically less than 0.5, indicating less sensitivity to changes in the price of the underlying asset. By combining these two options, traders can create a position with a desired delta exposure, managing both risk and potential reward. The selection of strike prices is crucial as it determines the overall delta exposure of the Bull Call Spread. Impact of Strike Price on Delta Exposure Delta exposure in a Bull Call Spread is a crucial factor in determining the overall sensitivity of the position to changes in the price of the underlying asset. By adjusting the strike price of the sold call option, traders can fine-tune their delta exposure to align with their market expectations and risk management preferences. How Delta Exposure Works: Higher Strike Price for the Sold Call Option: When the strike price of the sold call option is higher, the overall delta exposure of the Bull Call Spread increases. This is because the sold option has a lower delta, contributing less to offsetting the delta of the purchased call option. Lower Strike Price for the Sold Call Option: Conversely, a lower strike price for the sold call option decreases the overall delta exposure. The sold option's higher delta offsets more of the delta from the purchased option, resulting in a lower net delta for the spread. Examples of Delta Exposure: Example 1: Buying a call option with a strike price of 0.0064 and selling a call option with a strike price of 0.0065. Purchased call option delta: 0.51 Sold call option delta: 0.34 Net delta: 0.51 - 0.34 = 0.17 Example 2: Buying a call option with a strike price of 0.0064 and selling a call option with a strike price of 0.0066. Purchased call option delta: 0.51 Sold call option delta: 0.21 Net delta: 0.51 - 0.21 = 0.29 As illustrated, the higher the strike price of the sold call option, the greater the net delta exposure. This increased delta indicates that the position is more sensitive to changes in the price of Japanese Yen Futures, allowing traders to capitalize on more significant price movements. Conversely, a lower strike price reduces delta exposure, making the position less sensitive to price changes but also limiting potential gains. Case Study: Japanese Yen Futures Market Scenario: Recently, a downtrend in Japanese Yen Futures appears to have potentially reversed, presenting an opportunity to capitalize on a new potential upward movement. To take advantage of this potential uptrend, we will construct a Bull Call Spread with specific entry, stop loss, and target prices based on Yen Futures prices (underlying). Underlying Trade Setup Entry Price: 0.0064 Stop Loss Price: 0.00633 Target Price: 0.00674 Point Values and Margin Requirements Point Values: For Japanese Yen Futures, each tick (0.0000005) equals $6.25. Therefore, a movement from 0.0064 to 0.0065 represents a 200-tick change, which equals $1,250 per contract. Margin Requirements: Margin requirements for Japanese Yen Futures vary but are currently set at $2,800 per contract on the CME Group website. This amount represents the minimum amount of funds required to maintain the futures position. Valid Bull Call Spread Setup Given the current market scenario, the following setup is selected: 1. Purchased Call Option Strike Price: 0.0064 (ATM) Delta: 0.51 2. Sold Call Option Variations Strike Price 0.0068: Delta: 0.08 3. Net Delta: 0.42 Reward-to-Risk Ratio Calculation Due to the limited risk profile of Debit Spreads, where the maximum potential loss is confined to the initial debit paid, stop loss orders will not be factored into this reward-to-risk ratio calculation. Debit Paid: 0.000085 (call purchased) - 0.000015 (call sold) = 0.00007 Potential Gain: Sold Strike - Strike Bought - Debit Paid = 0.0068 - 0.0064 - 0.00007 = 0.00033 Potential Loss: Debit Paid = 0.00007 Reward-to-Risk Ratio: 0.00033 / 0.00007 ≈ 4.71 This ratio indicates a favorable risk-reward setup, as the potential reward is significantly higher than the risk. Conclusion In this article, we have explored the intricacies of using Bull Call Spreads to tailor delta exposure in Japanese Yen Futures trading. By strategically selecting the strike prices for the options involved, traders can effectively manage their delta exposure, aligning their positions with their market outlook and risk tolerance. Key Points Recapped: Bull Call Spreads: This strategy involves buying an at-the-money (ATM) call option and selling an out-of-the-money (OTM) call option to capitalize on moderate upward price movements. Delta Exposure: The delta of the options involved plays a crucial role in determining the overall sensitivity of the spread to price changes in the underlying asset. Strike Price Variations: Adjusting the strike price of the sold call option can significantly impact the net delta exposure, offering traders the flexibility to fine-tune their positions. Case Study: A practical example using Japanese Yen Futures illustrated how varying the sold unit's strike price changes the delta exposure, providing concrete insights into the strategy. Risk Management: We always emphasize the importance of stop loss orders, hedging techniques, avoiding undefined risk exposure, and precise entries and exits ensures that trades are structured with proper risk controls. By understanding and applying these principles, traders can enhance their ability to navigate the complexities of options trading, making informed decisions that align with their trading objectives. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
CME:6JU2024Education
by traddictiv
2
ICICI Bank turning Bullish - Expecting Target of 530--550ICICI turned super bullish from this point as RSI taking support at 60.00. Bullish Harami Candle forming on daily chart, break and sustain above 480.00 will take it to 520 and then to 530--550 We can enter ICICI Bank with Bull Call Spread. Bull Call Spread on ICICI Bank +1x 31DEC2020 480CE - ₹ 23.65 -1x 31DEC2020 530CE - ₹ 7.25 Max. Profit - ₹ +46,200 Max. Loss - ₹ -22,550 Max. RR Ratio - 1:2.00 Breakeven - 497.00 Estimated Margin/Premium - ₹23,000-- ₹25,000
NSE:ICICIBANKLong
by RahulPrajapati
1
VIX poised for a sharp breakout 1. As can be seen VIX has once again formed a bullish wedge which is ready to breakout in the very near future 2. Another way to look at this is by combining the 2 wedges which is forming a triangle ( see attached line chart). This is also showing signs of a breakout. 3. 50d SMA for the PUT/ CALL ratio is at EXTREME lows; last seen in 2009 ! This is reflecting extreme complacency and it can almost never end well; a sharp correction is a given (see chart below) 4. What would the catalyst be ? who knows... could be the FED meeting or something random that the market will conveniently choose to react to STRATEGY: bought sept contract bull call spread (25/35)
Editors' picks
TVC:VIXLong
by markethunter888
9
Trading Edge 2020 Portfolio -Trade #5- MCD - Call Debit SpreadTicker: MCD Position: - Feb 14th Expiry - Long 210 Strike call = 3.78 - Delta 0.92 - Short 212.50 Strike call = 1.90 - Delta 0.62 - Net cost = $1.88 - Break even at expiry = $211.88 - Max profit = $0.62 (33%) - Run 5x contracts = $940 Profit/ Exit targets: - Exit position if MCD closes below the 21 ema on the daily - Max profit is target, you may wish to run 80% max value of spread as your exit ($2.376 GTC sell order for spread) Rationale: - MCD has bounced off the 21 ema - MACD is signaling a potential bullish continuation on both daily and lower time frames (4hr, 1hr etc.) - MCD is within 4% of prior highs - Moving averages are all stacked bullishly - Appears to be in a solid uptrend, looking for some near-term trend continuation -TradingEdge
NYSE:MCDLong
by Profit_Link
SMG 90/95 bull call spread With the July contracts, a 90/95 bull call spread can be placed for a debit of 3.97. This places our break-even at 93.97 on the July 20th expiry. The max profit of $102 per contract occurs above the upper strike of the sold call at 95. We are bullish on both the technicals and fundamentals of SMG. The multinational corporation, known for its consumer fertilizers and pesticides and new expansion into hydroponic equipment for the marijuana industry, has been trading in an up-channel. 2019 Q2 earnings beat estimates, with EPS of $3.64 (.22 above forecasts) and a top line of $1.19 billion (greater than the estimated $1.16 billion). The biggest growth opportunity is in its Scotts' Hawthorne subsidiary, which provides various products (hydroponics, fertilizers and lighting systems) to the cannabis industry.
NYSE:SMGLong
by LaurenTrading
BA July 355/370 bull debit vertical spreadThis technically-driven call debit spread on Boeing entails buying a 355 call and selling the 370 call, both with standard july expiry. The cost of taking this position is a debit of 6.35, making the break even 361.33. This is slightly below the long term support levels, and the resistance of the upper boundary of the horizontal channel, which will become a support after it is penetrated. The lows from March 22nd and April 10th were both roughly 362. Once this was penetrated the stock has traded in a horizontal range. This support around 362 has been tested a couple times; this makes it stronger when it is finally broken through. Also, the 50 day simple moving average is at 365, and the 200 simple moving average is at 363, further strengthening this area of support. The maximum profit for this trade is reached at the strike of the written call, 370, and is the difference between the strikes minus the debit (15-6.35= 865/contract). This trade is 18.91 deltas positive per contract.
NYSE:BALong
by LaurenTrading